Home improvement tips abound for homeowners, primarily due to the fact that eventually every homeowner wants to make improvements to their home. Unfortunately not all remodeling projects increase a home’s property value; this is why homeowners must consider the financial risks involved in remodeling. This is especially important for those who are considering selling their home within a year after project completion.
Financial investment considerations rank high on the list of home improvement tips, because there are many variables affecting home property values. Regardless of the home remodeling project, a homeowner should never expect a dollar-for-dollar return. The monetary returns for every dollar spent ranges anywhere from zero to approximately 90 percent. This is the difficult point for every homeowner, because there is no standard formula for calculating return on investment for home remodeling.
Although there are many factors to consider for monetary return on any home improvement, the following provides a guideline.
Converting Existing Space – for example converting an attic into a bedroom or finishing a basement. These projects tend to bring a better return than adding a new family room onto the home. This is primarily due to the costs of adding a foundation, exterior siding or bricks, extending a roof, and more. These items already exist when converting a current space.
Where the Water is Located – remodeling a bathroom or kitchen typically bring a greater return on investment than any other room in a home.
Quality of Materials – financial investment in higher quality materials typically brings returns on the higher end for every dollar invested. Purchasing sinks, appliances, and cabinets with dings and dents or plastic materials for interior remodeling may save money up front; however, these cheap items may actually reduce the value of a home. Quality counts!
Home Repairs – such as reroofing a home, adding new paint to the exterior or interior rooms typically do not increase the value of a home. These items are considered traditional home maintenance items.
Swimming Pools – are not a good investment, because most people do not want them in their yards due to the high cost of upkeep and cleaning requirements.
Theme Rooms – if resell is in the future, remodeling a room into a tribute for a favorite football team or movie is not a good idea. Potential buyers are only willing to accept these tributes if they can cheaply and quickly remodel the room to fit their life style.
Issues with Remodeling: Four Questions to Ask Before Beginning
The following are important questions that require serious answers prior to making the financial investment a home improvement project.
Reselling soon? – if an improvement project is being considered to improve a home’s value, then expensive remodeling projects should be avoided. If planning to sell a home within the next year, the financial investment will never be recouped.
What is the resale value of neighborhood homes? – research is required to determine the resale value of homes within the neighborhood. The average resale value is what can be reasonably expected, which is then subtracted by amount remaining on a mortgage. This difference, minus amount of profit expected, is the amount that home improvements must not exceed.
Features desired? – do not add too many features to a home that do not already exist in neighborhood homes. For example add a family room if other homes in the neighborhood have one. Another example is upgrading to two bathrooms or to three bedrooms to match these homes. Upgrading to four bathrooms and four bedrooms, when everyone else has one or two bathrooms and two bedrooms is not a good return on investment.
Do it yourself? – remodeling takes time, skills, and adjustments to daily routine. This is especially true when remodeling a kitchen or bathroom, while maintaining fulltime employment. Many times it is quicker and less costly to have a qualified handyman or licensed contractor complete the project. Regardless of which path is taken, knowing what exactly is wanted is essential to success.
Home improvement projects must take into consideration financial investment and the projects affect on property value. Every homeowner considering a remodeling project must also think about the return on investment in dollars. No project will bring a dollar-for-dollar return on every dollar spent on renovation.
If a homeowner plans on staying in their home for many years, then return on investment and property value are not as important as other factors when selling soon. Regardless of selling soon or many years from now, most of these issues and remodeling factors still apply.
Homebuilders are constantly being challenged by changing business trends and climate cycles. Small businesses struggle to find ways to cut costs, increase profitability and provide the best customer service. The bottom line is to find a common ground between consumer demands and determine what services to provide. In the past year, there has been a significant change in trends – people are still unemployed, home values are down and new home starts are down.
The Kitchen is a Culinary Laboratory
With the growing trend of food cooking shows and classes, consumers have expressed a growing interest in the culinary arts. On one hand, basic cooking at home is the most efficient way to save money, especially if it can be done fast, cheap, and “where the heart is”. Consumers see these appliances not only as an investment, but also as an improved resell value in the home.
Home remodelers are rushing to take advantage of providing the most specialized service to these eager home chefs. Consumers are craving products on scales that have never been seen before, for products from famous chefs like, Emeril, Rachel Ray, Glada, Paula Dean and Bobby Flay.
The Restroom a Necessity
Many realtors expressed that the most profitable room in a home to remodel before selling a home on the market is the bathroom. The state of a bathroom can make or break a deal by the buyer. At the same time, consumers are surprisingly driven to remodel their bathrooms more then ever before. Whirlpool bathtubs, saunas and new tiles were some of the hottest trends. Now people want the bare necessities to create the highest possible resale value.
In the current economy the majority of consumers are not spending money on luxury items they are spending money on improvements that will improve their quality of living as well as their pocket book. The Energy Tax Credits available through the Department of Energy are an added incentive for homeowners. They have encouraged consumers to be kind to the environment by replacing with energy saving products which start showing savings the day they are installed.
Window companies like Allgood Home Products and Air Tight Home Products state that consumers are also concerned about their increasing their homes value. Products like windows and doors not only improve the homes curb appeal but also provide homeowners with return on their initial investment.
Consumers are more concerned about conserving energy and saving money. Windows are their most popular items, above roofing, doors, gutters and insulation. They emphasize that consumers seek a good return on their investments that generate the best energy efficiency, a credit on their taxes and therefore providing a greater resell value.
As people spend more time at home in a recessionary environment, they are more likely to perform maintenance themselves then hiring someone to make installations for them. Bob Schiflett, at Aquatic Garden Designs, said the most growing trend that he noticed in the past year was that people wanted to install their own water fountains than paying extra for labor costs. Even though the same amount of people demand water fountains installed in their homes, people have more time to spend installing new improvements themselves, than paying a professional to do it.
David Nelsen, with The Lawnkeeper in Ohio, said sees a growing trend in longer service contracts in lawn maintenance services. “Since people are staying home, more people are demanding their grass cut and bushes trimmed on a more regular basis. Instead of leaving on a vacation and neglecting their lawn, they are staying home and paying someone else to upkeep their lawn.”
A Vacation at Home
Consumer spending is the largest component of the Gross National Product. People are constantly spending hard-earned dollars on home improvements from a new sink to planning mulch designs and home efficiencies to conserve resources. Trends are constantly changing as consumers are driven to purchase tax credit incentive products and installing features on their own. The new trend of creating a “staycation”, is staying closer to home.