By Sara Clemence
Posted 07/12/2006
Best investments
for your home
How to get the best return
on your remodeling projects
Interest rates are up, the real estate
boom has petered out, and so, it appears,
has the remodeling frenzy.
In 2001, U.S. homeowners spent $104.6
billion on remodeling projects, estimates
Harvard's Joint Center for Housing
Studies. By the end of 2005, spending
had risen to $149.5 billion —
an increase of 43 percent over four
years.
"It was the stars aligning,"
says Kermit Baker, director of the
remodeling futures program at JCHS.
"Financing costs were very low
for people who were choosing to finance
a project. Putting some money in your
home seemed like a fun way to spend
money but also a good investment."
But according to JCHS, renovation
spending slowed considerably in the
first quarter of 2006, growing just
4.5 percent over the prior 12 months.
Home equity loans, a major financing
vehicle for Americans looking to upgrade
their properties, became more expensive.
And the real estate market softened
— considerably, in some areas.
No longer can home owners slap improvements
onto their properties, secure in the
knowledge that they will recoup that
money, and maybe substantially more,
when it comes time to sell.
Under these circumstances, it's worth
taking a closer look at remodeling
investments, and how much of a return
you can really expect to get on them.
There are plenty of ways to alter
a home, from simple improvement projects
to gilding-the-lily additions. Should
you pay for a kitchen overhaul, adding
an island, granite countertops and
stainless-steel appliances? Or would
you be better off painting the room
and sticking new doors on the cabinets?
Will a new deck raise the value of
your home or simply be a perk you
enjoy as long as you live in the house?
Every year for nearly two decades,
Remodeling magazine has published
a survey detailing how much money
home owners in different parts of
the country can expect to recoup from
renovation investments. From replacing
the siding with fancier material to
adding on a lavish new master suite,
the report details costs and returns
for more than a dozen projects.
Doing a midrange bathroom remodel
or a high-end siding replacement can
get Americans back the most money
on average, according to Remodeling's
2005 Cost vs. Value Report. Once they
sell, home owners can expect to recoup
an average of 102.2 percent of their
investment for a midrange bathroom
renovation and 103.6 percent for siding
replacement. Plus, the owners will
probably be able to enjoy the upgrades
for a while.
Those numbers can be much higher
— and also dramatically lower.
In the western U.S., that bathroom
renovation can bring in 112 percent
of the original investment, according
to the study. But around the country,
a home owner will only get back about
74 percent, on average, of the cost
of a new home office.
And just because you spend more doesn't
mean you will get back a higher percentage
of your money later. For an upscale
kitchen makeover, which involves installing
custom cherry cabinets and other luxurious
amenities, the average recouped value
is lower (about 85 percent) than for
a minor kitchen remodeling project
(98.5 percent), which is much less
extensive and expensive.
And if you're looking to get your
money back when you sell, it's a good
idea to avoid the unusual.
"Kitchens generally tend to
recoup their cost, and bathrooms too,"
says Delores Conway, director of the
Casden Real Estate Economics Forecast
at the USC Lusk Center for Real Estate.
"Those are widely appealing to
the marketplace, and they tend to
be more standard in form. Things that
are very idiosyncratic and are customized
to the home owners' individual tastes
... don't appeal to a wider audience."
That can include wine cellars, home
theaters, au pair living suites and
other fancy add-ons. Some buyers may
see them as fabulous extras, but others
may see them as unnecessary and not
be willing to pay a premium for them.
"With putting in a fancy swimming
pool or tennis court or something
like that," Baker says, "some
buyers might want it. But other buyers
think it's a liability."
Your potential return often depends
on the regional market, the neighborhood
and the characteristics of the individual
home. |
