Financial Investment Considerations and Home Property Value
Guidelines and recommendations are provided for homeowners who are considering home remodeling projects for the best return on investment.
Home improvement tips abound for homeowners, primarily due to the fact that eventually every homeowner wants to make improvements to their home. Unfortunately not all remodeling projects increase a home’s property value; this is why homeowners must consider the financial risks involved in remodeling. This is especially important for those who are considering selling their home within a year after project completion.
Financial investment considerations rank high on the list of home improvement tips, because there are many variables affecting home property values. Regardless of the home remodeling project, a homeowner should never expect a dollar-for-dollar return. The monetary returns for every dollar spent ranges anywhere from zero to approximately 90 percent. This is the difficult point for every homeowner, because there is no standard formula for calculating return on investment for home remodeling.
Home Remodeling: Factors to Consider
Although there are many factors to consider for monetary return on any home improvement, the following provides a guideline.
Converting Existing Space – for example I recently had my oxford loft converted by Touchstone Builders to increase space in my home. You could also consider finishing a basement. These projects tend to bring a better return than adding a new family room onto the home. This is primarily due to the costs of adding a foundation, exterior siding or bricks, extending a roof, and more. These items already exist when converting a current space.
Where the Water is Located – remodeling a bathroom or kitchen typically bring a greater return on investment than any other room in a home.
Quality of Materials – financial investment in higher quality materials typically brings returns on the higher end for every dollar invested. Purchasing sinks, appliances, and cabinets with dings and dents or plastic materials for interior remodeling may save money up front; however, these cheap items may actually reduce the value of a home. Quality counts!
Home Repairs – such as reroofing a home, adding new paint to the exterior or interior rooms typically do not increase the value of a home. These items are considered traditional home maintenance items.
Swimming Pools – are not always a good investment, because most people do not want them in their yards due to the high cost of upkeep and cleaning requirements.
Theme Rooms – if resell is in the future, remodeling a room into a tribute for a favorite football team or movie is not a good idea. Potential buyers are only willing to accept these tributes if they can cheaply and quickly remodel the room to fit their life style.
The following are important questions that require serious answers prior to making the financial investment a home improvement project.
Reselling soon? – if an improvement project is being considered to improve a home’s value, then expensive remodeling projects should be avoided. If planning to sell a home within the next year, the financial investment will never be recouped.
What is the resale value of neighbourhood homes? – research is required to determine the resale value of homes within the neighborhood. The average resale value is what can be reasonably expected, which is then subtracted by amount remaining on a mortgage. This difference, minus amount of profit expected, is the amount that home improvements must not exceed.
Features desired? – do not add too many features to a home that do not already exist in neighborhood homes. For example add a family room if other homes in the neighborhood have one. Another example is upgrading to two bathrooms or to three bedrooms to match these homes. Upgrading to four bathrooms and four bedrooms, when everyone else has one or two bathrooms and two bedrooms is not a good return on investment.
Do it yourself? – remodeling takes time, skills, and adjustments to daily routine. This is especially true when remodeling a kitchen or bathroom, while maintaining fulltime employment. Many times it is quicker and less costly to have a qualified handyman or licensed contractor complete the project. Regardless of which path is taken, knowing what exactly is wanted is essential to success.
Home improvement projects must take into consideration financial investment and the projects affect on property value. Every homeowner considering a remodeling project must also think about the return on investment in dollars. No project will bring a dollar-for-dollar return on every dollar spent on renovation.
If a homeowner plans on staying in their home for many years, then return on investment and property value are not as important as other factors when selling soon. Regardless of selling soon or many years from now, most of these issues and remodeling factors still apply.