- The more time you plan to live in your home, the less risk a remodel is.
- Very few remodels are worth taking out a loan for.
Is This Your Forever Home?
It’s hard to believe, but the average American moves 11.4 times, and according to the data-crunchers at FiveThirtyEight, most 25-year-olds still have more than six moves (!) remaining. So, statistically speaking, you’re going to move.
And you’ll need to sell your house when you do. Which means you should think about how any project will affect your home’s value. It’s not as simple as you think. Just because you improve, doesn’t mean you recoup (more details on that coming up — just watch for the tables).
Some people just want to buy a house and turn it into a giant, English estate. That’s your prerogative.
On the other hand, you may truly plan to stay put. Newer studies find that today’s first-time buyers want to stay in their first homes longer than previous generations. So if you’re one of the ones bucking tradition, then by all means, do what you want to do without regard to resale value.
But if you’re planning a move anytime between now and eternity, let the Joneses keep a good lead on you in the renovation race. You’ll come out better financially. Guaranteed.
How Does Your Home Rate?
You don’t want to be the best house in the neighborhood. Otherwise, literally every other house around you looks like a better deal. It’s only smart to keep up with the Joneses if everyone on your block does. Keep an eye on comparable properties nearby, and use those prices to know how much is too much to invest in upgrades.
If the average home in your area sells for $700,000, and you purchase a fixer-upper for $600,000, don’t invest more than $100,000 — otherwise you’re wasting cash.
Are You Tempted to Finance Your Project?
As a general rule, taking out a loan for a renovation is a bad idea. Any large-scale upgrades that require begging the bank for cash should get an automatic “no” (sorry!). Even if you know for a fact that the Joneses financed their dream bathroom, that’s just all the more reason to march to your own home ownership drum.
Think about it: Even if the Joneses are increasing their home’s value a bit, they’re also paying interest, which eats into the benefit.
That said, don’t feel guilty about financing smaller, low-risk projects that are sure to increase your equity. For example, upgraded insulation may not be sexy, but according to the National Association of REALTORS’® “Remodeling Impact Report,” its median cost is just $2,100, and it recovers 95% of its value in a sale. So a small loan (that you can pay off quickly) might make sense, especially when you consider the energy savings.
Good bets include:
Project Median Cost Recoup in $$
New Roofing $7,600 $8,000
Hardwood Flooring Refinish $2,500 $2,500
Insulation Upgrade $2,100 $2,000
New Wood Flooring $5,500 $5,000
New Garage Door $2,300 $2,000
New Vinyl Siding $12,000 $10,000
Have You Done Your Research?
Some projects — like refinishing your hardwood — are no-brainers because they’re relatively small and recoup most of their value in a sale.
Other, bigger investments, like updated kitchens, are a big draw for future buyers.
Old, dated kitchens are the number one killer of all deals. According to the “Report,” a typical kitchen remodel costs $30,000 and recovers $20,000 in equity. And no, that $10,000 difference isn’t wasted. You’ll love the upgrades while you live there, and get most of your money back when you move. (And enjoy a shorter selling time, too.)
Here are some popular projects and their typical costs. But a REALTOR® will know what’s ultimately best in your neighborhood.
Project Median Cost Recoup in $$
New Vinyl Windows $15,000 $12,000
New Fiber Cement Siding $19,100 $15,000
New Steel Front Door $2,000 $1,500
HVAC Replacement $7,000 $5,000
Basement Conversion to Living Area $36,000 $25,000
Kitchen Upgrade $30,000 $20,000
Complete Kitchen Renovation $60,000 $40,000
Attic Conversion to Living Area $65,000 $40,000
New Fiberglass Front Door $2,500 $1,500
Bathroom Renovation $26,000 $15,000
New Wood Windows $26,000 $15,000
Closet Renovation $3,500 $2,000
New Master Suite $112,500 $60,000
Add New Bathroom $50,000 $26,000
Another equity-rich option is creating an open floor plan. You can increase the home’s value by knocking down those walls and adding square footage.
Renovating your home into the nicest digs in the neighborhood comes with big risks. Best to think twice before replicating the Joneses’ extravagant additions, lest you end up with an over-renovated house that’s undervalued by the market.