How to Balance ROI with ROE (Return on Enjoyment) When Improving Your Home
Three insights on the two kinds of value in a home-improvement project
By Kari Nelson, AIA | March 4, 2021
K Nelson Architects’ Kari Nelson, AIA, in a client’s kitchen. Photo by Alyssa Lee Photography.
SPOTLIGHT
Use the Right Formula
Many homeowners will ask at the start of a project, “If I spend this much improving my home, will I get it all back when I sell it?” Unfortunately, the answer is almost always “no.” Studies show that most home-improvement projects yield a return on investment (ROI) of 40 to 80 percent, depending on the project type and economic conditions. If return on investment was the only formula used when considering a home-improvement project, it’s possible no one would ever improve their home. The major X factor is return on enjoyment, or ROE. This number is more difficult to pinpoint—it reflects how much improving your home can affect your quality of life, your aesthetic enjoyment, and your comfort. For example, when you go on a vacation, it typically yields a zero-percent ROI and a 100-percent ROE. The ROE is an important factor to consider when investing in one of the most important elements of your life—your home.
Consider Long-Term and Short-Term Goals
When thinking about a home remodel or addition, consider how long you plan to stay in the house once the project is completed. If your plan is to sell the house soon after the project is completed (say, within five years), then the return on investment will have more weight. In order to maximize your ROI, you should focus on areas that are in disrepair or bad condition and would directly affect your ability to sell the home. These are often slightly smaller projects—like replacing a roof or windows, or other exterior “curb appeal” items. Minor kitchen or bathroom remodels also yield a higher ROI.
When trying to maximize your ROE, projects like adding a master suite or a family room, or doing an extensive kitchen remodel, yield high returns on enjoyment, as these are the spaces we most often use.
If you are planning to stay in the home for a while after the project is complete (say, 10 or more years), then the return on enjoyment will likely have much more weight. In other words, as you stay in your house longer, the value of your investment will depreciate (like most items will with time), but you will have maximized your enjoyment of the space. When trying to maximize your ROE, projects like adding a master suite or a family room, or doing an extensive kitchen remodel, yield high returns on enjoyment, as these are the spaces we most often use.
Surround Yourself with Good Advisors
There are many people who can help you balance ROI with ROE. A builder can help inform you on the cost of various projects. A financial planner and/or lender can help you gauge what is practical and feasible to invest monetarily. A real estate agent may have input on items that will help you sell the home when the time comes. Most of these advisors will speak to the monetary investment, or ROI. A great way to maximize your return on enjoyment is to connect with an architect early on. An architect will have a holistic view of the design options and estimated costs, and can help you balance ROI and ROE. From the onset of the project, they will listen to you to learn what items might provide you with the most enjoyment (these items differ with each homeowner), then customize the project for you to maximize both ROI and ROE.
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