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Can't move? Improve! Get the most bang for your buck with these renovations

By   |  Posted in Homeowners & Repeat Buyers

Some folks only care about how a home improvement will affect their quality of life and don't view it as an investment. If that's you, go ahead and put in the garden pagoda, media room (complete with popcorn machine) and three-story water feature if it makes you happy. But if you are keeping an eye on the bottom line, you'll want to understand how today's depressed markets and new financing rules can affect your home's resale value. The return on investment (ROI) should certainly be part of your calculations if you finance your project with a cash-out home loan refinance or a home equity loan.

Appraisers today look at home improvement differently

The Home Valuation Code of Conduct (HVCC) gives those involved in a real estate transaction little say in who appraises the home, and less-experienced appraisers are getting much of the work for this reason. This means that the person who appraises your home for a buyer may have little understanding of what improvements are considered desirable in your neighborhood. In addition, few sales mean few comparables -- there may not be a similar home with similar upgrades to compare your home to. So appraisers will be more conservative in valuing your renovation.

For maximum value, stick with the tried and true

There are several principles to keep in mind when deciding what improvements to undertake.

  • Curb appeal is king. Exterior improvements that don't cost an arm and a leg return a high portion of your investment back to you. That means new paint or siding, new exterior doors and cleaning up the yard pay off handsomely. However, over-the-top landscaping and in-ground pools do not.
  • Bedrooms sell houses. There's a reason why real estate agents list the number of bedrooms first when they advertise properties. Everyone expects homes with more bedrooms to cost more. One of the best remodeling projects you can undertake is turning attic space into a bedroom. Converting empty space into "living space" instantly creates a lot more value per square foot.
  • Modest- to moderate-cost improvements pay off best. It's always easier to recoup the cost of refaced kitchen cabinets, new flooring and paint than it is if you gut the place and install top-of-the-line everything. On a national level, eight out of the top 10 projects in terms of costs recouped were exterior replacement projects that cost less than $14,000.
  • Correcting deficiencies is smart investing. Improvements that bring a property up to snuff help sell your home. Buyers notice outdated kitchens and worn flooring. Freshening up your space without going overboard makes your property more marketable.
  • Be careful with energy improvements. While windows and siding costs can largely be recouped, more unusual upgrades like geothermal heating systems are risky. If you plan to keep your home for a long time, the costs may be covered by the energy saved, but when you sell, appraisers have a hard time giving you value for these things, especially if you're the only one in the neighborhood with such a system. On the plus side: You may get some tax breaks for making certain improvements.

Top home improvements by region

Which renovation projects offer the highest return on investment depends on where you live. Here's a rundown of which projects recoup the most costs, according to Remodeling magazine.

New England

  • Entry door replacement (steel), cost recouped: 117.8 percent
  • Vinyl siding replacement, cost recouped: 86.0 percent
  • Deck addition (wood), cost recouped: 84.1 percent

Mid Atlantic

  • Entry door replacement (steel), cost recouped: 97.5 percent
  • Vinyl siding replacement, cost recouped: 81.2 percent
  • Window replacement, cost recouped: 76.8 percent

South Atlantic

  • Entry door replacement (steel), cost recouped: 146.8 percent
  • Attic bedroom addition, cost recouped: 90.0 percent
  • Vinyl siding replacement, cost recouped: 80.5 percent

East South Central

  • Entry door replacement (steel), cost recouped: 117.0 percent
  • Attic bedroom addition, cost recouped: 90.4 percent
  • Vinyl siding replacement, cost recouped: 89.2 percent

West South Central

  • Entry door replacement (steel), cost recouped: 239.4 percent
  • Attic bedroom addition, cost recouped: 97.7 percent
  • Basement remodel, cost recouped: 92.6 percent

East North Central

  • Entry door replacement (steel), cost recouped: 90.1 percent
  • Vinyl siding replacement, cost recouped: 73.5 percent
  • Attic bedroom addition, cost recouped: 73.4 percent

West North Central

  • Deck addition (wood), cost recouped: 82.7 percent
  • Attic bedroom addition, cost recouped: 75.7 percent
  • Entry door replacement (steel), cost recouped: 74.6 percent

Mountain

  • Entry door replacement (steel), cost recouped: 111.2 percent
  • Vinyl siding replacement, cost recouped: 79.9 percent
  • Deck addition (wood), cost recouped: 79.1 percent

Pacific

  • Deck addition (wood), cost recouped: 128.0 percent
  • Minor kitchen remodel, cost recouped: 94.8 percent
  • Basement remodel, cost recouped: 91.6 percent

If return on investment is your prime consideration, check out this detailed report from Remodeling magazine, consult with a trusted real estate agent, and ask your contractor. To be very sure, you can provide a licensed appraiser with your plans and specifications, and he or she can appraise your home assuming that the proposed improvements are made. It may be worth a few hundred dollars to get that certainty before you begin your project.

About the author:

Gina Pogol has been writing about mortgage and finance since 1994. In addition to a decade in mortgage lending, she has worked as a business credit systems consultant for Experian and as an accountant for Deloitte.

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