How to Renovate Your Home and Get a Return on Investment

Ask any home makeover show devotee about the No. 1 rule to home renovations, and they'll tell you, "Do as Joanna Gaines does."

Gaines of HGTV's Fixer Upper fame — along with her husband, Chip — has single-handedly sparked a wave of new home design trends, from a whitewashed, neutral color palette to a renewed fervor for a rustic-chic aesthetic to yes, even the sought-after shiplap look.

The show may be officially over, but those renovation trends aren’t going anywhere anytime soon. And in the home-renovation game, return on investment — or ROI — is king.

According to a recent study from Houzz, 52 percent of homeowners said they planned to renovate their homes last year, on average spending $27,300 to make over 3.5 rooms.

So if you're going to lay out that kind of cash, be sure you're making something back when you sell your house. Here's how.

FOCUS ON KEY AREAS

Kitchen renovations are the most sought-after by potential buyers, followed by bathrooms, because these rooms are used most often by homeowners. They also tend to be the most expensive renos. In other words, if buyers can avoid doing them themselves, they will.

Mudrooms and finished basements are also popular, especially for young families with kids, says Jeanne Lisa Wolschina, a Haddonfield, New Jersey-based realtor.

Opening up walls to achieve the popular “open concept” look is also high on potential buyers’ lists. Other renovations that add the most value are a new front door, a minor kitchen remodel, attic insulation and a new wood deck.

KNOW WHAT TO SKIP

It’s best to skip any renovations that are too reflective of personal style.

“I currently have a home with $20,000-plus in crystal lighting fixtures," says Becky Williams, a Chico, California-based realtor. "It is a rare person that will appreciate this enough to pay for it."

A good rule of thumb: Expect to make back 50 percent of what you spent.

Focus on projects that will help create a versatile backdrop, instead of a centerpiece. "It's like getting a pair of neutral shoes that will go with every outfit," Williams explains. Then, add your own personal flair to the home with things you can take with you: furniture, artwork, linens and other décor.

BE REALISTIC ABOUT RETURNS

A good rule of thumb: Expect to make back 50 percent of what you spent on renovations, Wolschina says.

For example, if you spend $10,000 to build a new backyard deck, it's reasonable to expect it to raise your home's selling price by $5,000.

And the 50 percent is just a baseline. If you stay in your house a bit longer (say, five to seven years or more) that ratio increases, and you can expect a greater return.

Already in the process of selling your home? Renovations still might benefit you financially. For example, if an outdated bathroom is deterring buyers, a quick floor re-tiling, tub replacement and fresh coat of paint could get your house to move.

“Even if you don’t get dime-for-dime on that investment back, it will help you sell the house faster," Wolschina says. "Think about it this way: It translates into money since the house is not sitting on the market for months while you’re paying taxes and mortgage payments.”

DON'T PRICE YOURSELF OUT OF YOUR NEIGHBORHOOD

While it can be tempting to put $50,000 or more toward the kitchen of your dreams, first calculate whether the money spent will be worthwhile.

“It's important to not price yourself out of your neighborhood,” Wolschina says. “You want to make sure your budget — and what you spend on a renovation — keeps you in line with what you could sell in your neighborhood down the road."

Compare prices of similar nearby homes to make sure you’re not going overboard with your renovations. For example, if your home is valued at $200,000 and homes in your neighborhood hover around $215,000, it wouldn’t be a good investment to spend that $50,000 on a new kitchen.

An easy way to determine your renovation budget is to compare your home’s current value to what it would sell for if it were completely redone.

IN THE END, DO WHAT YOU LOVE

You can only do so much to predict future trends and potential resale value within your market. But don't forget to renovate for the person who'll be living with the changes first — you.

“Spend your money on what makes you happy,” Wolschina says. “You work hard, and when you spend money on a renovation, you should really choose what you love, not just think about what someone else will buy down the road.”