When
considering whether or not to tackle a remodeling project in your home you may have several concerns including the cost, a
timeline, and how the final remodel will affect your quality of life. For many homeowners their core concern, however, is
whether they will get a high return on their investment.
Real
Estate market conditions and current property values have a profound effect on the investment return from improvements or
additions to a home. A slow market would produce less of a return than an active market. The neighborhood that the home sits
in must also be considered. You are more likely to recoup a higher percentage of your investment in remodeling if you take
the worst house on the block and fix it up so that it is comparable to other homes in the neighborhood. It would not make
as much financial sense to make your home much bigger and nicer than any other in the neighborhood. The smartest renovations
you can make and the biggest bang you will get for your buck is to “keep up with the Jones’,” not by doing
them one better. Many experts say that the smartest renovation investments include ones that preserve the value of the home,
not necessarily the ones that beautify it. These include roof replacement, plumbing and heating and electrical upgrades.
Other
factors that would impact the degree of return would include the type of improvement. Kitchen and bathroom remodels generally
have the highest return. A backyard pool generally offers a lower return. Another factor would be the size of the improvement
project. In some cases the combined effect of small improvements provide a higher return in resale value than larger improvements.
Small improvements are generally cosmetic and include painting, kitchen cabinet refacing, new counters, new appliances, and
landscaping. Larger improvements involve adding additional living area or upgrading existing areas. The desirability of the
improvement is another factor to consider when looking at remodeling as an investment. What is in vogue today may not be tomorrow.
For example, outside wood decks were not as common years ago but are considered a big plus in homes today. The cost of home
improvements varies considerably, depending on economic conditions and location. If remodeling costs are high due to materials
or labor and a slow market is in force, with particularly low sales prices, you may not be able to recover as much of your
initial investment if costs were in line with sales prices.
As
a homeowner you should consider tangible factors. Replacing windows for example
typical adds comfort and aesthetic value to the home as well as offers reduced energy costs. The same is true of remodeling
that includes an upgrade of house systems. Replacing heating or air conditioning equipment with more efficient models, for
example. A kitchen remodel often includes upgraded appliances that are not only attractive but easier to use and more energy
efficient. There are also intangible factors to consider; look at the elements of a remodel that cannot be measured in dollars
and cents. Unlike other kinds of investments, like stocks and bonds, you retain the use of your money in the form of the space
of comfort you gain when you remodel. Don’t undertake a big remodeling project if you plan to move within a short period
of time because you won’t have time to enjoy it and often times the new owners of your home will want to do something
different.
According
to Consumer Reports (11/02), following are the five improvements that recover 50% to 75% of their cost if the home is sold
at least one year after the renovations are complete.
1. Major Kitchen Remodeling
2. Bathroom Remodeling
3. Attic Bedroom Addition
4. Master-Suite Addition
5. Basement Refinishing
Sources
“Making
your House Pay Off” Consumer Reports 11/02
“2003
Cost vs. Value Report” Remodeling Magazine 5/03
