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Say you spend $5,000 for a home theater sound system. Is that a good investment?
From a bean counter's point of view, almost certainly not. But the answer is an intensely personal one. If you love listening to music and it meaningfully adds to your quality of life, then it may well be a worthwhile expense. Unless you happen to find a home buyer who loves music as much as you do, though, you probably won't make the money back when you sell your home. And even if you do find such a buyer, you might get just a few hundred dollars more for the house than you would have without the sound system.
The payback on remodeling is notoriously tricky to calculate, so here's the No. 1 rule to remember:
Undertake a project only if you're planning to stay in the house for some time -- preferably at least a couple of years. Don't start major work for the sake of trying to increase resale value, because the truth is that few if any big remodeling projects will even let you recoup your investment, let alone make money on it. (That's why house flippers focus on minor cosmetic projects: bigger bang for the buck.)
And if project payback is a determining factor, here's one more rule to remember: Research the market in your neighborhood before you decide where to spend your money. You don't want to put your house out of reach for the area.
Since you can't guarantee that you will get a decent return, it makes the most sense to remodel when you will be able to enjoy the benefits in the long run. If selling is your primary goal, make minor, more cosmetic changes. Removing clutter from your home and yard is the single most effective way of increasing curb appeal and resale value.
We're often asked on DoItYourself.com about which improvements are good investments. The table here aims to answer that question, using data from the 2012-13 Cost vs. Value Report, conducted by Remodeling magazine in cooperation with Realtor magazine. Just keep three considerations in mind when you're weighing a home improvement project:
• Personal benefits to your lifestyle, health or family.
• The money you'll save while you're still living in the house -- on energy-efficiency upgrades, for example.
• The estimated potential payback at resale.
Home Improvement Project
Build a Safe Room
Room should double as a usable living area to increase value
Build a Swimming Pool
May reduce the number of buyers in most areas
Note adding a brick, concrete or stone patio may raise this to 50%
Add a Garage
Payback varies by area. In some areas a larger carport is better.
In urban and suburban areas increased privacy is a concern
This value disappears quickly
Replace Siding (vinyl)
Home Office Remodel
Replace Windows (vinyl)
Energy-efficiency may also reduce your home operating cost
Add a Fireplace
Add a Deck (wood)
Kitchen Remodel (Major)
Kitchen Remodel (Minor)
Add 2nd Full Bathroom
For 1- and 1-1/2-bath homes, this is the best payback
Other factors to consider for a cost-effective project with the best chance of increasing your home's value:
Improvements should be appropriate to the house. Spending $100,000 on a kitchen in a median-priced home isn't going to pay you back.
Keep the original design of your home in mind. Stick with the same or complementary materials. Aim for a flowing congruency so that your home remains tasteful inside and out.
Think through color scheme and decor in much the same way. Bold, eccentric color schemes deter potential buyers who lean conservative. Overly personalized options like a cute toilet and bidet from France are not cost-justified (though again, they might be perfectly sensible on a personal level!).
Times change. So do tastes, technology and fads. Just a few years ago, wiring every room with multiple phone lines and ethernet cables for computer networking seemed logical. Then along came wireless networks, and now lots of that wall cable is unneeded.
A parting thought: When you're trying to decide whether to take the plunge and remodel, put yourself first. If you absolutely want to add on a deck, go for it. If you have a spacious basement and a couple of rambunctious kids who'd love a play area, don't hesitate!
When you concentrate solely on the return you might get from a home improvement project, you're not only limiting your options, you're also basing your decision on a factor that's constantly changing. The enjoyment of improving your home for the rest of your time living in it might well outweigh what money you get back when it is time to sell.