Remodeling is a Poor Investment Strategy

By Bud Coburn

http://www.actionplus-hi.com

Remodeling can dramatically increase the quality of life for building occupants, but if you are considering a remodel strictly as an investment, think twice about it.
 
Remodeling is rarely a sound monetary investment.
According to a report published by Remodeling Magazine, most remodeling projects add only 60% to 80% of their cost to the home, and no projects, on average, yield any positive return. Home upgrades are thus more accurately described as consumer spending than as true investments, which ordinarily have a decent chance of seeing some kind of profit.
Source: Remodeling Magazine, 2008
 Project
% of Cost
Recouped in Resale
deck addition
81.8%
minor kitchen remodel
79.5%
bathroom remodel
70.7%
master suite addition
66%
home office addition
54.6%
As the report deals only with averages, it is still possible for individual remodeling projects to yield positive returns. A wooden deck added to a mid-range house on the Pacific coast, for instance, will add more value than the construction costs nearly half of the time. Even the most wasteful of the projects analyzed by the study, such as the addition of a sunroom or a backup power generator, are bound to reap a profit in rare instances. Also, remodeling projects are more likely to be profitable in houses that are inexpensive for their neighborhood. But, by and large, remodeling projects should be undertaken to improve quality of life for household occupants, not strictly as monetary investments. While you will lose more than a third of what you put into a family room addition, for instance, maybe your family will enjoy the addition enough to more than counter its expense.

Remodeling is also a cheap alternative to house-swapping, which can cost 10% of your current house’s value to real estate commissions, moving costs, and selling expenses. If your home update would cost less than the costs accrued by house-swapping, or if you can’t live outside your current neighborhood, the remodeling project might be worthwhile. If you do choose to remodel your house, as always, have the project inspected by an InterNACHI inspector.

Remodeling Mistakes

If you are committed to remodeling in order to add resale value to your home, avoid the following mistakes:

  • upgrading your house in any way that will make it bigger or fancier than most others in your neighborhood, as such remodels are unlikely to add much value;
  • adding pools or spas, as they repel as many buyers as they attract, in most markets. These upgrades often require maintenance that buyers don’t want to hassle with, and they pose a drowning risk to young children. Ask your InterNACHI inspector during your next inspection about remodeling projects that prospective buyers may find dangerous.
  • indulging in your personal tastes rather than aiming to please prospective buyers. Bold statements, such as brightly colored appliances, will repel many buyers.
  • trusting TV shows that are based on the premise that remodeling is a true monetary investment. These shows are successful if people watch them, not if their claims are based in reality. Buying anything at retail cost and hoping to resell it at a profit – especially in the future, when the item or project has become dated – is rarely a winning financial strategy.

Low-Cost Alternatives to RemodelingStaging can be used as a low-cost alternative to remodeing

Real estate agents often recommend the following fixes, as they are likely to return more than their cost:

  • Refurbish rather than replace. Refinishing or re-facing cabinets is usually less expensive than it costs to replace them. Re-glaze sinks and tubs to extend their lives and avoid the high price of replacing them.
  • Rethink how you use space. While adding floor space may seem like a reasonable way to deal with a space crunch, you can probably achieve the same result by ditching the clutter. An off-site storage unit can be used to free up space in your house.
  • Re-purpose a room. Never use the guest bedroom? Maybe you can turn it into an office or a dining room instead.
  • Paint. Paint can transform the look of a room or house, and it is inexpensive and relatively easy to apply. Hire a professional or do it yourself.
  • Brighten the house by removing heavy curtains, washing windows, and trimming back branches and bushes that cover windows.
  • Deep-clean. Scour your house from top to bottom.
  • Clean up landscaping. Trim bushes and hedges, rake leaves, clear downed branches, plant flowers and replace mulch.
  • Use staging techniques. Rearrange furniture and décor to highlight the positive aspects of the room and create an inviting space. While you can do this one your own, professional staging services are contracted to tweak color and furniture to create an emotional appeal. Consider that a large segment of prospective home buyers will preview homes on the Internet, and staging can dramatically enhance a first impression.
In summary, remodeling is often a bad investment strategy, and inexpensive alternatives may achieve the same end.
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