In a red-hot real estate market, home improvements seem like a smart investment. Indeed, Americans spent a record $127 billion on remodeling last year. But is conventional wisdom right? It depends, say experts-on the project you pick, what you spend and where you live.
What To Consider First
Ask yourself, "Will this remodeling project enhance my life?" If it will, it's worth considering for that reason alone. But three key factors determine whether it's likely to pay off financially too:
1. Your neighborhood. Make your house as attractive as its neighbors but not significantly more attractive, advises Allyson Bernard, a real estate agent in Danbury, Conn. You're unlikely to recoup the cost of outshining the Joneses. Compare your home to others in the same area and price range before deciding how much to spend, adds Terry Hankner, a Cincinnati agent: "For example, if most of them have three full baths and you don't, consider adding one."
2. The cost. Sinking $50,000 into a house won't automatically add $50,000 to its value. In fact, a modest makeover may pay off better than a big-budget project. "Adding a second bathroom clearly makes a house much more attractive," says Richard Gaylord, a Long Beach, Calif., real estate agent. "But the cost can range from $15,000 to $50,000 or more. Get several bids."
3. The local real estate market. In a sizzling market, home improvements can add dramatically to the resale value of a home; in a sluggish market, they don't pay for themselves. Last year, a $15,235 kitchen remodeling project in the booming Jacksonville, Fla., market increased the value of a house by $22,367. In Detroit-a depressed market-the same project cost $15,229 but added just $4000 to resale value. Nationwide, homeowners on average recouped only 80-90 cents on each dollar spent last year. The bottom line: To be successful, a home improvement must repay you emotionally as well as financially.
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