With a large number of homes for sale, many at amazingly low prices, investors are heading back in to the real estate market, and some adventurous first time investors are testing the waters. With so many shows on the Discovery and HGTV, flipping is becoming trendy again, but do your research. Remodeling can dramatically increase
the quality of life for building occupants, but if you are considering a
remodel strictly as an investment, think twice about it.
Remodeling is rarely a sound monetary investment.
According to a report published by
Remodeling Magazine, most remodeling projects add only 60% to 80% of their cost
to the home, and no projects,
on average, yield any positive
return. Home upgrades are thus more accurately described as consumer spending
than as true investments, which ordinarily have a decent chance of seeing some
kind of profit.
Source: Remodeling Magazine, 2008
|
|
Project
|
% of Cost
Recouped in Resale |
deck addition
|
81.8%
|
minor kitchen remodel
|
79.5%
|
bathroom remodel
|
70.7%
|
master suite addition
|
66%
|
home office addition
|
54.6%
|
As the report deals only with averages,
it is still possible for individual remodeling projects to yield positive
returns. A wooden deck added to a mid-range house on the Pacific coast, for
instance, will add more value than the construction costs nearly half of the
time. Even the most wasteful of the projects analyzed by the study, such as the
addition of a sunroom or a backup power generator, are bound to reap a profit
in rare instances. Also, remodeling projects are more likely to be profitable
in houses that are inexpensive for their neighborhood. But, by and large,
remodeling projects should be undertaken to improve quality of life for
household occupants, not strictly as monetary investments. While you will lose
more than a third of what you put into a family room addition, for instance,
maybe your family will enjoy the addition enough to more than counter its
expense.
Remodeling is also a cheap alternative to house-swapping, which can
cost 10% of your current house's value to real estate commissions, moving
costs, and selling expenses. If your home update would cost less than the costs
accrued by house-swapping, or if you can’t live outside your current
neighborhood, the remodeling project might be worthwhile. If you do choose to
remodel your house, as always, have the project inspected by an InterNACHI
inspector.
Remodeling Mistakes
If you are committed to remodeling in order to add resale value
to your home, avoid the following mistakes:
- upgrading your house in
any way that will make it bigger or fancier than most others in your
neighborhood, as such remodels are unlikely to add much value;
- adding pools or spas, as
they repel as many buyers as they attract, in most markets. These upgrades
often require maintenance that buyers don’t want to hassle with, and they
pose a drowning risk to young children. Ask your InterNACHI inspector
during your next inspection about remodeling projects that prospective
buyers may find dangerous.
- indulging in your
personal tastes rather than aiming to please prospective buyers. Bold
statements, such as brightly colored appliances, will repel many buyers.
- trusting TV shows that are based on the premise that remodeling is a true monetary investment. These shows are successful if people watch them, not if their claims are based in reality. Buying anything at retail cost and hoping to resell it at a profit – especially in the future, when the item or project has become dated – is rarely a winning financial strategy.
Low-Cost Alternatives to Remodeling
Real estate agents often recommend the following fixes, as they
are likely to return more than their cost:
- Refurbish rather than
replace. Refinishing or re-facing cabinets is usually less expensive than
it costs to replace them. Re-glaze sinks and tubs to extend their lives
and avoid the high price of replacing them.
- Rethink how you use
space. While adding floor space may seem like a reasonable way to deal
with a space crunch, you can probably achieve the same result by
ditching the clutter. An off-site storage unit can be used to free up
space in your house.
- Re-purpose a room. Never
use the guest bedroom? Maybe you can turn it into an office or a dining
room instead.
- Paint. Paint can
transform the look of a room or house, and it is inexpensive and
relatively easy to apply. Hire a professional or do it yourself.
- Brighten the house by
removing heavy curtains, washing windows, and trimming back branches and
bushes that cover windows.
- Deep-clean. Scour your
house from top to bottom.
- Clean up landscaping.
Trim bushes and hedges, rake leaves, clear downed branches, plant flowers
and replace mulch.
- Use staging techniques.
Rearrange furniture and décor to highlight the positive aspects of the
room and create an inviting space. While you can do this one your
own, professional staging services are contracted to tweak color and
furniture to create an emotional appeal. Consider that a
large segment of prospective home buyers will preview homes on the
Internet, and staging can dramatically enhance a first impression.
In summary, remodeling is often a bad
investment strategy, and inexpensive alternatives may achieve the same end.
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