Remodeling Always Makes Financial Sense...NOT

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.

Living Big in Tiny Style

A growing number of homeowners in the U.S. are downsizing to homes smaller than 1,000 square feet, and, in some cases, smaller than 100 square feet. This transition to smaller homes, known as the Small House Movement, is adhered to by people who believe American houses in general are too large, wasteful and energy-inefficient.

While home sizes ballooned from the 1950s into the early 2000s, data suggests that this trend is slowing, or even reversing. A 2008 survey shows that more than 60% of potential home buyers would rather have a smaller house with more amenities than the other way around. Similarly, according to the National Association of Home Builders, 59% of builders nationwide said they were planning to or were already significantly downscaling from the "McMansion" era.

The disadvantages of downsizing are obvious:  you may have to get rid a lot of furniture, the new house is less prestigious, and you lose space for guests. Neighbors, too, might view your small home as a threat to their property values. But living small is nothing new.  After World War II, 1,000-square-foot homes were the norm for returning soldiers and their families.

Gayle Butler, editor-in-chief of Better Homes and Gardens, describes the Small House Movement as "right-sizing," rather than downsizing, as homeowners forgo unused space and buy homes that better fit their needs. Dee Williams, of Olympia, Washington, sold her 1,500-square-foot home and moved into an 84-square-foot home that she built herself. When the electric company began charging more for electricity, her bill doubled from $4 to $8, an increase that probably would have been more dramatic in her previous home.

Adherents to the Small House Movement enjoy the following perks of their transition:

• increased cash flow. Smaller homes require a smaller mortgage, lower property taxes, and decreased homeowner’s insurance, maintenance costs, and the expense required to furnish the home. Owners might even be able to purchase a smaller house in cash using the proceeds from their existing home. And with the extra money, they can afford improved insulation, higher-quality windows and flooring, and luxuries such as solar roof panels and skylights;
• less maintenance. Fewer rooms and smaller spaces cut down on the time needed to clean and maintain, leaving more hours in the day for more enjoyable activities;
• lower utility bills. It costs a lot less to heat and cool a small home than a large home. Typically, there is no wasted space in vaults in a small home;
• reduced consumption. If there is little space to store items, homeowners are much less likely to buy new things. Fewer rooms and windows mean less money spent on TVs and curtains, for instance;
• more time with family. Less space means that more room must be shared, which encourages group activities and dinners.

While the benefits of the Small House Movement are clear, the transition isn’t easy for everyone, especially for those who have become accustomed to large houses. The following tips can help homeowners make do with less space:

• Use items for more than one purpose. For example, you can use a trunk as a coffee table, placing in it items such as shoes, files, and extra sheets to save closet space.
• Eliminate or cut down on extra silverware, pots, pans and dishes if the kids have moved out.
• Use rooms for more than one purpose. You may be able to squeeze a small computer desk into the corner of a bedroom, and a rarely-used dining room can double as a library.
• Purchase a stackable washer/dryer unit to save space.

In summary, median house sizes have begun to decline, spurred on by adherents to the Small House Movement.

Check out http://www.houseplans.com/collection/micro-cottages and http://www.tumbleweedhouses.com/pages/houses for some cool pics and plans!