Wednesday, December 15, 2010

Home Remodel Returns on Investment


Many a homeowner spends thousands of dollars on a home remodel only to find out that in reality it has not changed the value to their house. Unless the remodeling project is designed to fix a structural problem or flaw it is often unlikely that the homeowner will make a profit aside from the pleasure in having the house enhanced to fit their liking.

Most of the time projects such as a kitchen, bathroom, window or deck remodel have shown the greatest return of value. If cost recovery is an important consideration then homeowners should think about their remodel from the perspective of a potential buyer.

If you are a first time home buyer looking to enhance your house and then move to a bigger home, or someone who is considering downsizing from a single family to a smaller condo or apartment here are three things to consider when remodeling your home.

1. Location
A common mistake among homeowners is to improve their house more than that of the neighborhood it is located in. While the more improved house might possibly receive more interest than others in the area marketed it is unlikely to command a premium well above the average selling price of homes in the neighborhood. A little known fact is that market price is held in check by the lowest-priced homes in your neighborhood and not the other way around.

The physical geographic location of your home will also have an impact on which projects will have the quickest or greatest payback. The cost of a swimming pool makes it difficult to recover the cost of installation. Some times, it can even reduce the overall value of a house. However, if you live in the southeast or southwest of the United States, a swimming pool can be a valuable addition to a home especially during the hot summer months.

2. Time
While you may not be planning on moving houses immediately after a remodel, time does impact the ability of a remodel to increase a houses value. Structural or design improvements such as an addition or completed basement will add value for a longer period of time than updates to a kitchen or bathroom or even technological improvements such as a new furnace or air conditioning system.

Knocking out a dining room wall and opening up the space for both cooking and entertaining might give you the kitchen of your dreams but this remodel does not increase the square footage of your home. Likewise a kitchen overhaul with new glass tiles and an island space might bring you much enjoyment but following whatever the newest trend is risky given that the trend might be obsolete when you choose to sell.

The water purifying system that you spent $1500 on might be an eco friendly upgrade that you think is significant but it will typically not bring any added value to a potential buyer and also runs the risk of not being the latest and greatest a few years after installation.

3. Consider the cost – and the return of your investment
Did you know that there are several sources that can give you insight into the expected payback for home improvement projects? Realtor magazine publishes an annual “Cost vs. Value” report that compares the cost of common remodeling projects and shows the payback that homeowners can expect. The report for 2009 can be found at: http://www.realtor.org/rmohome_and_design/Articles/1001_costvsvalue_2009

Remodeling magazine publishes a yearly report that compares the national and regional averages for 33 popular remodeling projects. To look at the current 2009-2010 report click on http://www.remodeling.hw.net/2009/costvsvalue/national.aspx
Another tip to consider is that when contemplating two equally useful changes, homeowners should research local real estate guides to determine which of the projects will most likely pay for itself. Home prices are always reflected in the taste of the local property buyers and the price that the buyers are willing to pay for the given neighborhood.

As with most projects a little bit of homework will go a long way in helping you determine what will pay off and what will not. However it is always important to consider the value that you as the homeowner will receive from the remodel project over any cost recovery that comes with resale. Ultimately it is your home and your satisfaction that makes the remodel worthwhile.

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