Renovate for Real Estate GainsPosted by Nick Niesen on November 8th, 2010 A home is so much more than a roof over our heads. It is our largest purchase (unless you like thoroughbreds or really expensive shoes), and almost always a significant portion of our assets at retirement. So when it comes to improving your home through renovations, it's important to think beyond cosmetic appeal and look at how those projects can improve your wealth. We may think of a home as a long-term purchase, but in fact a great deal of us will own a home for just 5-7 years. So look very closely at the money you spend on your home. Look for projects that will add the most perceived value to your home for the least cost. Decision-making should be guided by the big picture ? a financial plan that includes your retirement goals, acceptable debt levels, and tax planning. I encourage you to think about potential home renovation projects in terms of three categories: resale value, maintenance costs, and potential risk. Made for the Market Pragmatic home enhancements like adding central air or a gas fireplace generally will not earn more in sales value than their cost. These types of additions involve well-known, fixed costs, and depreciation always takes a bite. Luxury items like swimming pools and hot tubs generally score low in terms of resale value. Swimming pools typically add about $5,000 to the home's resale value ? not much considering a pool costs about $20,000 to install. Major house additions should be carefully considered. These usually involve electrical, structural or plumbing work that is hard to recover. What areas pay off most? Bedrooms. Adding a bedroom is a big plus, while a family room can enhance the value of a smaller home. Basements score low; they are still considered by many buyers as a cold, damp place to store things. Reduce Maintenance Costs Monitor Risk Also, preventive maintenance is always a wise investment in some areas where the cost of complications is high. Quality roofing, wiring and water drainage (eaves troughs, etc.) will prevent unexpected and costly damage to your home. The idea with these projects is not how much you'll gain, but how much you'll avoid losing. So remember, next time you survey your assets and investments, give some thought to the value of your home. Look for efficient improvements ? changes that will earn or save you more money than they cost to implement. Ask yourself if a pool is a good idea when an extra bedroom might cost the same but increase the value of your home by $15,000 more. Like it? Share it!More by this author |