How to choose the right home remodeling project to invest in
Before the national housing collapse in 2007, it was a lot easier to make decision about home remodeling. Pretty much any money you were putting into your home to improve it was a wise investment. But nowadays, it’s a whole different story. While some projects can recoup a pretty good percentage of the original cost, other remodeling projects recoup very little and are not a sound investment. So it’s important that you do you research before making any remodeling decisions. For the past 14 years, Remodeling Magazine has been tracking cost recoupment figures on remodeling projects and publishing the results in an annual Cost vs. Value Report. Based on trends tracked in 2015, here are some guidelines to follow when choosing which remodeling project(s) to invest in.
- Aim to cover your costs. Before the housing market crash, you could invest heavily in your home and expect near 100% returns on pretty much any project. Some projects could actually make you money. Now, pretty much any remodeling project will cost more than it earns you. But many projects are better investments than others. Consult the most recent Cost vs. Value Report and try to choose projects that have the best recoupment rates.
- Smaller projects focusing on essentials yield the best returns. One good rule of thumb to keep in mind when remodeling is that it’s the smaller scale projects that really serve a purpose that recoup the most from the original cost. An upscale outdoor deck or a gourmet kitchen used to be safe investments but now you’ll just lose a lot of money. Something like a new front door or garage door on the other hand, can recoup almost 90% of the cost.
- Upgrade rooms and spaces, but don’t go overboard. Minor remodeling projects whether it be in the kitchen, bathrooms, or bedrooms are usually a pretty sound investment. But major remodels where you gut everything and build from scratch or really upscale remodeling projects tended to lose a lot of money.
- Think about improvements that make the most sense given your neighborhood. It’s important to keep the value of other homes in your neighborhood in mind. If you live in a middle-class neighborhood where the average home goes for about $300,000, it doesn’t make much sense to drop $100,000 on an upscale kitchen remodel.
- How long will I stay post-renovation? Keep in mind that the longer you remain in your home post-renovation, the more you get out of your investment both in terms of the added value to your home and in enjoyment of your remodeled home. But if you’re remodeling for the sole purpose of trying to sell your home, or if you just know you’re going to be moving out in a year or two and plan to sell, then you’ll want to think very carefully about which projects you do and which projects you avoid.
- How will this project affect my property taxes? Finally, remember that some remodeling projects can result in higher property taxes. It’s a good idea to check in with your local residential taxing body to determine what the before and after property tax rates will be for your remodeled home. If you know a real estate broker that has a lot of experience in your neighborhood you may want to talk to him/her as well.
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