There are scores of ways to invest financially: stocks, savings bonds, real estate, baseball cards, antiques, raise your child to become a highly paid athlete, and so on. However, for most people, the largest investment they are likely to make is their home, and improvements on your home are simply making a deeper investment.
But How Do You Determine Return?
This is tricky. Larger improvements like additions and remodels depend greatly on a matrix of factors, such as your local housing market, how your home stacks up in your city and in your neighborhood, the type of improvement, and so forth. However, to help everyone with some hard numbers, Hanley Wood puts together an annual Cost Vs Value Report on major home improvements in all areas of the country so that we can get a good look into what kind of turnaround we can expect from a local investment.
The Greatest Return for the Lowest Price
Siding. Spend a little. Get most of it back. The national average in the Hanley Wood Report showed that homeowners spend roughly $9,000 for vinyl siding and $13,000 for fiber cement siding, and they get back $7,900 and $11,500 back, respectively, at closing. This translates into 12 cents on the dollar.
The Most Expensive Remodel
A Master Suite Addition, which averaged $176,000 nationally, cost nearly $70,000 more than the second highest-priced project, an upscale kitchen remodel. The Master Suite carried a return of $128,000, which puts it on the low side of average returns. However, this still means a $176,000 investment really only cost $48,000. You devil you.
The Lowest Values
Sunroom Additions and Home Office Remodels will recoup 66% and 63%, respectively, which still isn’t bad since you are getting these improvements for less than half price at closing. However, the lowest returns begin to complete the investment picture for most people in that you begin to see what truly adds value to your home and what add value to your life.
A Master Suite or a Sunroom likely makes your home a retreat for you after a long day. So the true return cannot be measured only in dollars. On the other side, Bathroom Additions, Mid-Range Bathroom and Kitchen Remodels, Window Replacements, and Siding truly add objective value by increasing space, bathrooms, and curb appeal. These are the kinds of things that house hunters zero in on, and the type of things that receive the focus in real estate listings, so it makes sense that their return is higher.
Projects that are for a specific owner, like a home office, sunroom, or game room, are usually viewed as extras and not value adds. Again, this doesn’t mean you shouldn’t create the home that you want, just that certain improvements might not create the return you’re looking for.
Gearing Your Mind for Investment
The real estate market has continued to drop, despite home improvements still being on the rise, not to mention the cost of home improvements trending up. This combination, at the moment, makes for a questionable financial investment. However, you need to think of your home as a longer term investment, and not as a stock that needs to be flipped quickly. Think long term. We are going through a correction line or a down tic, and you shouldn’t stop improving or maintaining, but rather just recognize that most investments have high and low tides, but riding the long wave will pay off.
Maybe you don’t plan on being in that house forever, but if you think about improvements on your home as an investment in the future sale of that home, then you start to see that you are not throwing money away with improvements; you are just converting cash into siding and mortar and 2x4s, much the same way people turn cash into stocks or mutual fund or 401ks.
The trick is to view your home as a retirement account. You have money sitting right there in the value of your home, and it will be there when you decide to retire from that spot. More than that, if you make smart improvements and sell at the right time, your investment becomes even sweeter.
With home improvement investments, you get to enjoy the physical improvement the entire time you live there, but you really get to enjoy the improvements at closing, where, surely, you will be laughing all the way to the bank.