How to use home equity funds to increase your property value

If you're a homeowner with equity in your home, you have a useful financial tool at your fingertips. Right now, home equity levels are high for most homeowners, and you can tap into this equity to pay for any number of expenses, from bill consolidation to business or educational expenses.

And, you can also use your home equity to make home renovations that increase your property's value. That can be a wise move if you're planning to sell your home and buy a new one when mortgage rates drop. After all, you likely want to maximize what you can get from buyers, and one of the best ways to do that is to make your home more appealing and functional.

You can use a home equity loan or home equity line of credit (HELOC) to fund these types of projects — and you'll typically pay a lot less in interest than you would if you used a credit card or personal loan. But while borrowing from your home's equity can be more affordable than other loan types, it's still important to be strategic about your renovations and choose the ones that add significant value to your property.

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How to use home equity funds to increase your property value

If you want to increase your property's value with the funds from your home equity, some home renovations will be more valuable than others. Here are some of the best projects to consider if you want to add big value to your property.

• Kitchen remodel: Upgrading the kitchen is a tried-and-true method for increasing property value, and according to the National Association of Realtors (NAR), it can result in an average return on investment of between 70% and 75% on average. Modern appliances, energy-efficient features and quality materials can make a significant impact — as can many other types of kitchen upgrades. 
• Hardwood floor refinishing: If you have hardwood floors in your home that could use some sprucing up, you may want to put some of the money from your home equity loan or HELOC toward this expense. According to the most recent NAR Remodeling report, refinishing your hardwood floors can result in the highest returns of any remodel, with an average ROI of 147% — offering a big potential increase to your property value. 
• Bathroom upgrades: A sleek, updated bathroom adds appeal to your home — and can also add value to your property. If you're using your home equity funds to remodel your home, consider a bathroom remodel with features like a walk-in shower, new fixtures and enhanced lighting — which, according to Remodeling Magazine's Cost vs. Value 2022 report, can result in an ROI of 53% to 58% of the cost for the project. 
• Curb appeal enhancement: First impressions matter, and while things like landscaping or new paint may not seem like a smart investment to boost your property value, it can be. If you invest in landscaping, a new front door and exterior painting to boost your home's curb appeal, you may see big returns in terms of your property values. For example, a new front door typically results in an ROI of about 64%, while a new garage door can lead to an ROI of 100%, on average.
• Basement conversion: Using your home equity funds to transform an underutilized basement into a functional living space or an entertainment area can greatly increase usable square footage. With this type of renovation, homeowners recoup an estimated 86% of the project cost when they sell, according to the NAR. Plus, the added square footage can be a big draw for buyers who are looking for more space. 
• Energy-efficient improvements: Installing energy-efficient windows, insulation and solar panels not only lower utility costs but also attract eco-conscious buyers. The returns on investment can vary quite a bit depending on what the renovations are, but in general, these types of renovations can add quite a bit to your property's value in the short and long term.
• Adding a deck or patio: Outdoor living spaces can add a lot of value to your home. Building a deck or patio can extend your living area and create an inviting atmosphere — and can significantly increase your property value. Depending on the type of materials used, a deck can have an ROI of 62% to 65% or more, according to Remodeling magazine, so it can be a smart move to use some of your home equity funds for this type of project. 

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How to choose projects wisely 

While home renovations can add value to your property, it's important to choose wisely — especially if you're using your home's equity to fund them. Here are a few tips for choosing the right options for your home.

• Do your market research: Each market varies, so it's important to understand what's valuable in your local real estate market. Research which renovations are most sought after and offer the best ROI in your area and focus on those. 
• Avoid over-improvement: While it's tempting to go all out, avoid over-improving your home compared to others in your neighborhood. The value you add should align with the local market. 
• Consider longevity: Opt for durable materials and timeless design elements. Trends come and go, but enduring styles remain attractive to future buyers. 
• Prioritize essential spaces: Focus on projects that are essential to comfortable living, such as kitchens, bathrooms and structural improvements. 

The bottom line

Unlocking the potential of your home's equity through strategic renovations is a smart financial move that enhances both your living space and your property's value. Whether it's a kitchen revamp, energy-efficient upgrades or enhancing your home's curb appeal, careful planning and wise project selection can lead to a remarkable return on investment. But remember, the key lies in understanding your local market and making smart choices. By blending creativity with informed decision-making, you can transform your home into a valuable asset that stands out in the real estate landscape.