Does My Contemplated Improvement Project Make Sense?

Most home renovations require a substantial investment and, as with any major financial outlay, you need to pay attention to the return you can expect to receive on your investment. Some home renovations are better than others, including:

  • Remodel bathroom
  • Remodel kitchen
  • Add a deck
  • Remodel attic or basement
  • Replace siding

These are example of renovations where the homeowner's return on investment is quite high, but many others will also provide you with a decent payback when you eventually sell the house.

Here are some additional points to consider when contemplating a home renovation project:

  • Minor renovations yield a higher return. When it comes to spending on home renovations, usually less is more. In other words, you'll likely recoup a higher percentage of the money you spend on minor renovations compared with major renovations.
  • Value of renovations varies by region. There are some obvious regional differences in the value added to certain home improvements. You're likely to enjoy a higher return on your swimming pool investment if your home is in Fort Myers, Florida than a home in Fort Kent, Maine. But there are also more subtle regional differences in how the locals will value your home renovations.
  • Consider how the next buyer will welcome your renovations. This is very important. Your taste may be a whole lot different from the taste of a potential homebuyer. While kitchens and bathrooms are universally used, things like a wine cellar, home theater, ten-person sauna, planetarium, and a bocce court may not be to everyone's liking, as shocking as that may be to you if you're into any of the aforementioned. Some renovations are so bad that they actually impair the value of the home. A 20-person hot tub, for example, is likely to cause a potential homebuyer to wonder what kind of shenanigans went on in that house (not to mention wondering how much it will cost to remove it). By all means invest in an unusual, ego-gratifying home improvement of your liking, but view it as an investment in your own enjoyment, rather than an investment that will pay for itself when you eventually sell your spiffed up home.
  • Never own the best home in the neighborhood. Hopefully, you heeded this advice when you bought the joint in the first place. But some homeowners, in their zeal to keep up with the Joneses down the street, end up renovating the money pit until it's the neighborhood Taj Mahal. Bad decision. It's okay to do stuff to your home to make it a better place, but it shouldn't be the best. In fact, when planning additions, consider the neighborhood norms. If most of the homes have 3 bathrooms and you have two, adding a third makes sense, but adding a fourth is pushing the envelope.
  • Avoid extensive renovations if moving is on the horizon. Other than minor renovations, modernizing an ancient bathroom or landscaping, for example, you're unlikely to benefit handsomely from extensive renovations if you think you may be moving within the next five years or so.
  • Finance the renovations wisely. Ideally, you will be able to pay off any financing costs before you retire or soon thereafter.