Remodeling Projects That Make Sense
Remodeling an investment property can be a smart way to increase the property's value, while improvements of the wrong sort can be a costly mistake. But how can investors decide whether a particular project is worthwhile or a waste of money?
One secret of smart remodeling is to research the local housing market and select improvements that meet the expectations of renters (if the property is to be leased) or owner-occupant home buyers (if the property is to be resold after the improvements are made). For example, if comparable nearby rental houses offer a carport or a front-yard fence that creates a children's play area, those improvements might be smart choices for a rental property. Luxurious carpets or upscale kitchen appliances might be more suitable for a resale property, if those amenities are typical of comparable for-sales homes in the area.
Remodeling projects should neither surpass nor fall short of the standards and expectations of the marketplace in terms of cost and quality. A project that exceeds expectations is a wasted expenditure, because an investor will most likely not be able to recoup the expense. And a project that falls short may fail to accurately position the property for its intended use.
One useful resource for general information about the return on investment of mid-priced and upscale projects is Remodeling magazine, which publishes an annual survey comparing the cost of various projects in cities throughout the country to the average increase in the value of the property. The survey offers insights and applicability to both homeowners and investors.
The magazine's 2006 report found that no mid-priced remodeling projects recouped their full cost on average nationwide, though a few improvements returned more than 100 percent of the cost in selected areas. For example, replacement of vinyl siding in the South East Central region returned nearly 105 percent of the cost, which was almost $8,000.
Four projects that returned 85 percent or better of the cost on average nationally were replacement of vinyl siding (87%), replacement of wood-framed windows (85%), a minor kitchen remodel (85%), and a bathroom remodel (85%). Next on the list were replacement of vinyl-framed windows (84%), the addition of a second story (83%), a major kitchen remodel (80%), and an attic bedroom remodel (80%). The lowest returns came from a sunroom addition (66%) and a home office remodel (63%). The typical loss on investment for most projects doesn't mean the projects weren't necessary to meet market expectations.
National, regional, and city reports can be downloaded from the magazine's Web site, www.remodelingmagazine.com. Single copies of city reports cost $9.95 for the first city, plus $3.95 for each additional city.
Copyright 2007. Marcie Geffner. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without written permission of the author.
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