Top home improvement projects
By Michelle Warren • Bankrate.com

Canadians spend more than $40 billion a year on home renovation projects. But how much of that investment actually pays off?

There are countless studies out there that assess your Return On Investment, or ROI, and promise you'll receive a certain percentage back when it comes time to sell your home. But when you look a little closer and start comparing studies, you'll notice the information is often contradictory.

The truth is, if there's one essential rule of thumb when it comes to assessing the ROI on a potential renovation project, it's this: know thy neighbourhood.

Doug Heldman, a sales representative with Royal LePage, in Toronto, says people ask all the time what they can do to improve the resale value of their home. "You really have to think about the area and what appeals to people in that area," he says, adding that giving your home a boost doesn't have to cost a lot of money.

Heldman's top-three list doesn't even include granite counters or gazebos. In fact, it's pretty straightforward: de-clutter, clean every surface (including your windows) and paint. "These are the best things people can do to put money in their pocket," he says.

When it comes to spending serious money, take into account that old real estate adage: location, location, location. In other words, what increases value or appeal in one city, neighbourhood or even specific street, may not do the same elsewhere; the high-end features that might boost the value of a home in Toronto's tony Rosedale area might well be a lost investment in small-town Alberta.

The one thing to keep in mind across the board is that most renovations don't deliver a dollar-for-dollar return on investment. "It just doesn't work like that," says Wendy Rochester, a sales representative with Keller Williams Ottawa.  

Average return on investment
The Appraisal Institute of Canada publishes a list of the most popular renovations and their average return on investment. The list is meant to be a guide only; the institute's disclaimer emphasizes that location, quality of workmanship and materials can greatly influence home values.

Bang for your buck
Kitchen: Every home improvement should strike a balance between a smart investment decision and improving your quality of life. The room that best delivers that win-win situation is the kitchen. Long heralded as the heart of the home, a kitchen isn't just a place to cook or eat -- it's a gathering spot for family and friends, so a smart layout and general appeal are important. Granite countertops, a cooktop stove, high-end appliances and even wine coolers are the "it" items these days, but remember that styles change, so consider finishes that will have lasting appeal.

Bathroom: Updated tiles and fixtures are inexpensive ways to add interest to one of the home's most high-traffic areas. But if it's a major renovation, consider Jacuzzi-style tubs and walk-in showers. In addition, homeowners want a bathroom on the main floor, so investing in a stylish two-piece is a smart choice.

Flooring: Sometimes it's not so much about ROI, but the penalty you might face if you don't make in the investment, says Rochester. For example, worn carpeting can give the impression that a whole house is tired, prompting people to offer $5,000 or $10,000 below asking, when all that's really required is $2,000 in new carpeting or, better yet, hardwood flooring. Hard surfaces are all the rage, and neutral wood colours accommodate all tastes.

Windows: "You don't want to neglect major maintenance, such as roof, windows and furnace," says Rochester, adding if you have to pick between the windows and furnace, go for the windows because they're something people notice right away. They're also a great long-term investment because new windows can help reduce energy costs.

Curb appeal: You never get a second chance to make a first impression. In Remodeling Magazine's annual and highly respected "Cost vs. Value" Report, outdoor endeavours, such as replacing siding and building a fence or deck, delivered the top ROI.

Home improvement missteps
At the other end of the spectrum are swimming pools. These, along with greenhouses, tend to flounder at the bottom of the ROI lists.

However, when it comes to home improvement missteps, experts agree it's not so much what you do, but how you do it. Opt for classic rather than trendy designs and materials when it comes to things such as tiles, floors and cabinetry. Renovate with an eye on wide appeal, says Heldman. "You don't want to go to bold."

"You also don't want to completely tailor your home to you," says Rochester, pointing to people who turn a three-bedroom home into a huge one-bedroom master suite with a tiny office. At resale time, the potential buyers' list automatically excludes families.

Another common mistake is over-renovating a house. "You don't want to be the most expensive house in your neighbourhood," says Rochester. "In terms of resale, you have to think about who you're aiming at."

Of course, renovations aren't just about resale. As Heldman stresses, "If you're going to live in a house for five or 10 years, do whatever you think makes your day-to-day life more enjoyable."

That said, if you want the added joy of a healthy ROI, focus on the kitchen and bathroom, or satisfy your home improvement fetish with a fresh coat of paint, inside and out.

Michelle Warren is a freelance writer living in Toronto.