How to stretch your remodeling dollar

A gourmet kitchen. A spa bath. A new deck. The excitement of living in a newly remodeled home is wonderful. Wouldn’t it be even better if you knew your improvements were a wise investment?

While knowing a little about what return to expect on your remodeling investment may not dissuade you from the changes you want to make, at least the knowledge will let you go into the process with realistic expectations. Perhaps that knowledge will even help you enjoy your “new” home a little more when your project is complete.

Americans love investing in their homes for personal satisfaction and for financial return. In fact, home remodeling accounts for about 40 percent of all residential construction spending—more than $230 billion in 2006.

In addition to a higher return at resale, the proper changes can make a house more appealing and help bring more potential buyers. This can also help reduce the number of days a home is on the market.

No matter how important you consider financial return, you should think about certain things before diving into a remodeling project:

How long do you plan to stay in your home?  Like most investments, it can take time for that new equity to grow, so most renovations should be considered a long-term investment. If you’re not planning to stay in your home for at least three years, it’s best to restrict your investments to exterior, curb-appeal enhancements and regular maintenance. Also make sure that all major systems, like plumbing and electrical, are in good condition. A pre-market inspection by a professional can help ensure necessary issues are addressed in order to get the best price.

Keeping up with the Joneses.  People shopping for homes in your area probably expect a certain standard, and if your home doesn’t make the grade, an upgrade may be in order just to stay competitive. For instance, if most of the homes have two full baths, and yours has only one-and-a-half baths, adding space to make another full bath will likely more than pay for itself. The same concept applies if most homes have upgraded kitchens, but your does not. On the other hand, a high-end kitchen remodel might meet the status quo for one neighborhood but, in another neighborhood, it could be waste of money.

Don’t overbuild.  The flip side of building to standard is that overbuilding can really work against you financially. If you expand the neighborhood-average three-bedroom, two-bath home to five bedrooms and three and half baths, you’re probably pricing your home beyond the reach of people who will be interested in buying in your neighborhood. People with the kind of cash to afford your home will likely shop in the neighborhood where most of the homes are like yours.

Know what’s hot in your region.  Some home improvements have broad appeal no matter where you live, but others seem to be in high demand in certain regions only. For instance, a kitchen or bath remodel, deck addition or basement remodel can bring big bucks in the West while on the East Coast, some of the hot improvements are those that save energy and add attic bedrooms.

Check the pulse of the local real estate market.  When home prices are rising, you’re more likely to see an increase in your renovation investment. If the market is cool, however, getting back those improvement expenses can be harder.

A number of other things can affect your investment. Kitchen and bath remodels consistently offer good returns because most buying decisions are based on emotions. When homebuyers walk into a nicely redone kitchen or bath, or new master suite, they enjoy the thought of spending time there and the knowledge that they won’t have to invest time and money remodeling it themselves. On the other hand, some other improvements, like a new roof, just aren’t perceived as “sexy.”

When planning a remodeling project, be sure to maintain the integrity of your home’s original design. Nothing turns off a buyer more than an add-on that looks like an afterthought. Be sure all materials either match or complement those of the original house. Also, be aware that a lifestyle project, such as a pool, sauna or wine cellar, may be meaningful to you, but won’t necessarily appeal to other buyers. Hence, such a project likely won't add up to more dollars at resale.

The best minor remodels

Interestingly, less truly is sometimes more when it comes to remodeling. Because they’re less expensive, minor bath or kitchen upgrades generally will yield a better return on your investment than major renovations.

• Adding a deck:  “Livable space” has come to include the great outdoors, and adding a deck has become a popular home improvement. According to the National Association of Home Builders in 2007, 31 percent of home builders reported an increase in outdoor remodeling work compared to the previous year, and the most common type of outdoor remodeling job was adding a deck. 

• In the kitchen:  Adding functionality with dual sinks and cooking stations is worthwhile. So are cosmetic improvements like marble or granite countertops and ceramic tile backsplashes. Even if all you do is replace the appliances with stainless steel ones, you’ll make a positive impression on potential homebuyers.


Revamping space for a growing family 

When one couple purchased their home it was plenty large, even with just a partially finished daylight basement. But five years later, with a baby on the way, the couple decided it was time to expand by making better use of the unused basement space, rather than adding on.

"When we moved in, the basement just had some dated knobby pine paneling and partial walls, and we just used it for storage and a workshop," the wife reported. "Our goals for the remodel were to create a space that was warm, light and inviting for kids to hang out in, and to make better use of a space that felt piecemeal and unplanned."

The couple hired a contractor, and then brought in a designer to help take a fresh look at the floor plan. In addition to laying out rooms to accommodate a new office, they say the designer’s help in choosing materials and pre-shopping saved a lot of time that the busy couple couldn’t spare. 

In all, the remodel took 10 months and went about 20 percent over budget—a fairly typical overrun. The four bedroom, two bath home had already doubled in value over the prior five years, and the couple planned to stay in the home at least another five.

After the remodeling, they were confident of recapturing much of their investment when the time did come to sell.

“And besides,” they said, “now our home is more functional and, we believe, more marketable—thanks to these improvements."