As homes are harder to sell and the cost of remodeling has increased the value of your next project needs to be weighed against the money you can expect to gain at time of resale. Even if you will be holding on to your home for 5 years or more calculating which project is an investment and which is a creature comfort that you should pass on is more important then ever before. To know where your money is best spent lets look at some projects and talk about what you should expect from your investment.
For purpose of this article it is assumed that you purchased your home within the last 5 years. You have a first mortgage on the home and any large project will require a second. Your income is more then sufficient to cover your expenses and you have some savings in addition to your retirement investments. Now this probably excluded about half of the people out there but when you consider any project to add value or comfort you should also consider what the financial ramifications are.
We should also distinguish between elective and necessary work. If you have a broken toilet then you need to fix it. You can choose to replace it with a lower cost model or replace the internal parts if you can. This type of repair is necessary but deciding that a broken toilet is reason to remodel your whole bathroom is an elective decision. Anytime something works as it should but simply doesn’t fit your taste you should think about how the project will add to the value of your home.
If the project is small enough that you can pay for it within a month without dipping into your savings and it will provide you comfort and a return then it is worth considering.
For instance repainting a bedroom. The total cost to repaint an average size bedroom is probably about $150 if you do all the work yourself. Add to this some new or repainted switch and outlet covers and you may have greatly improved the livability of that room. This is not to say you should constantly repaint your rooms to match the seasons as they change but there are times especially for children’s rooms as they grow older or when a previous owner loved florescent red but its driving you out of your mind, in these situations you probably shouldn’t think twice but save the money over a few weeks and then do the work.
For larger projects like an addition, bathroom or kitchen remodel that can cost from hundreds to thousands of dollars or for an outside project like a deck, pool or garage you really need to run the numbers. The first thing you need to do is decide if you can do the work yourself or if you need to hire someone. Even if you can do most of the work yourself you may still need to hire an electrician, plumber or concrete person to perform some of the jobs that need to pass inspection.
Just like for a smaller project you shouldn’t jump into larger ones that can put you in debt. Ask yourself a few questions about the project to let you make your decision with good judgement.
Will the project and the materials used add to the final sale price of the home?
Realtors will tell you that the best money you can spend is in your bathroom and kitchen because this is where you do most of your living but they are also places where you can dump large amounts of money into a small amount of space. You may like the idea of granite counter tops and Italian stone floors but even in a relatively small kitchen you can expect to pay $10,000 and that money probably could be spent better someplace else.
How long will it take to pay for the project?
Payback time also increases as interest is added to your base cost. If you can pay for a project in a couple of months or if you can save for it and not use credit at all then you have just saved yourself 7% to 15% of the cost of the project depending on how you fund it from credit card or a loan.
Will you live in the house longer then the remodel will last?
This is something that most people never factor into their decisions. If you remodel your kitchen today will a buyer have the same feeling about it that you do today? Will the styles last? Will the appliances last and what does that mean if you sell. For the most part kitchen remodels loose their appeal in 3 years as appliances and styles change. If you stay in the home 7 years and it takes 5 to pay it off then any money paid towards your remodel better come back to you in better living You shouldn’t expect to see a return at time of sale.
Will performing the remodel or addition allow me to stay in a home I want to live in.
For many reasons we get attached to our homes. Usually the first home you buy if you haven’t rented for a period of time is not the home you stay in but after you have children in school and have established yourself in the area staying in one place is something we all prefer. If adding an extra room over your garage or finishing a basement will give you extra living room then a larger project can be justified.
Final Note
Remember Repairs are something you have to do. Remodeling is something you would like to do. Always justify your projects by calculating the cost vs payback. If it is something that can add to your house or add to the quality of your life and you can afford it then do it.
When reading our other HowTos we will explore different ways that you can increase value while saving money and sometimes you actually have to spend money to save money … like adding insulation to your attic.
And NEVER put yourself in debt to stay in fashion. New products and styles come out every year because manufacturers need to hype their products to get you to buy them. So, don’t buy a $300 pair of prefaded torn jeans just keep on wearing what you have and eventually your $15 jeans will look like a $300 pair.