Repair & Improve

Getting A Return On Your Home Improvement Investment

by Tom Kraeutler

For millions of Americans racing this week to file tax returns, refunds may arrive just in time to tackle a spring home improvement project.  According to the Internal Revenue Service, refunds for the nearly 60 million taxpayers who have already filed returns average $1993.

In each of the past 15 years, over one million homeowners spent more than $10,000 on a kitchen, bath or other major remodeling project, according to Harvard University’s Joint Center for Housing Studies.  And experts say home improvements are generally a good investment.  “Despite the seemingly wavering economy, the real estate market is still very strong”, said financial expert Adrienne Berg, founder of Wealthbuilder Financial.

But tackling a home improvement project does not always mean an increase in the value of your home.  While some projects will increase a homes value, others may have the same pay back as a losing lottery ticket.  Before you open your checkbook, there are a few things you should consider to make sure the end result produces a return on your investment – of both time and money:

VALUE CHECK - Before deciding how much how much to spend on a major improvement, get an estimate of the current value of your home.  To do this, log on to Microsoft’s HomeAdvisor.com.  Here you’ll be able to enter your street address and get a current estimate of what your house might sell for in today’s market, as well as the prices similar homes have recently sold for in your neighborhood.  By comparing these prices with renovation estimates, you’ll avoid over improving your home for the neighborhood, a common and costly mistake.

MOTIVE CHECK – Basically, there are 2 reasons to make major home improvements: pleasure or necessity.  If you’re not planning to move for 10 years or more, you’ll have more time to enjoy your improvements and might not be as concerned about getting a return on the investment.  However, if you’re improving your home to ultimately add to its resale value, you’ll need to prioritize and focus on the improvements that will pay off at sale time.

REALITY CHECK - Before calling in contractors, get a realistic estimate of what your project might cost by using one of the many available on-line cost estimators.  Most provide an approximate cost of the most common home improvement projects.  HomeAdvisor.com offers several that provide data “localized” to your zip code to adjust for geographic cost differences.  Having these numbers in advance of your contractor’s first visit also helps sort out the serious pros from amateurs just wanting to take a shot at your wallet.

PROFIT CHECK - According to the National Association of the Remodeling Industry, the top 5 remodeling projects are kitchens, baths, other interior rooms, additions, and window replacement.  And Remodeling Online reports that even though the average minor kitchen remodel will cost about $15,000, you’ll see a return on that investment of 88%.  Plus, fixing up that tired bathroom can deliver an 81% return if the house is sold within 1 year from the time the work is completed.

Even if your home improvement budget isn’t up for these big projects, smaller ones can also pay big dividends.  A new deck or patio, for example, may be the cheapest way to add to your outdoor living space.  Replacing kitchen appliances with ones that meet the new Department of Environmental Protection’s Energy Star rating can reduce utility expenses and help protect the environment.  And, even something as small as replacing 25% of the incandescent light bulbs in your home with compact fluorescents can reduce total electric lighting costs by an amazing 50%

So if once the pencils are down and the last numbers crunched, a refund appears at the end of your IRS return, you might want to invest in a home improvement project.  But before you do, be sure to think carefully about the project to make sure you see some “return” there, too.

TIME CHECK – According to the Joint Center for Housing Studies at Harvard University Home improvement projects most home owners tackle depend largely on a homes age, as well as personal situations:

• On average, most new home purchasers typically spend twice as much on home improvements during the first two years in a home as those that do not move.  Buyers of homes sold by households’ age 65 or older spend twice as much during the first two years after purchase as those sold by households less than 35 years of age.
• After the initial spending burst cased by a new home purchase, expenditures move up until a home reaches 25 to 30 years of age, a time when major systems start needing replacement.  At this point, annual expenditures peak average around $1,800 before retreating and beginning a new cycle.
• Households that are increasing in size are more than likely to take on projects that enlarge or reconfigure the living space within a home, such as when needing space for a parent, child or spouse.
• From 1985 to 1999, room additions were the most popular home improvement project (24.5%), followed by bathrooms (19.2%) and bedrooms (14.6%)
  

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