Which Improvements Pay Back?

Some remodeling projects may improve your home without significantly increasing your home's value. Find out which ones pay back!

Real estate professionals and trade publishers offer up statistics each year that help in sorting out answers. One of my favorites is a "Cost vs. Value" study published each year by Remodeling magazine, a trade publication targeted primarily toward professional remodeling contractors. This study compiles and analyzes data gathered from real estate agents throughout the country to determine both national and regional average returns on investment for various home improvements.

Recouping your remodeling investment may be your goal when you sell your house. But when it comes to resale value, all home improvements are not created equal. As a rule, kitchen remodeling projects and bathroom additions almost always pay back 90 percent or more of their costs. However, finishing a basement usually pays back less than 50 percent. Other improvements fall somewhere in between.

In looking at the results each year, I'm surprised to see that, on a national average, most improvements will not recoup your full investment if you sell the house within a year. Of course, exceptions abound, depending upon the region, the vibrancy of the real estate market, and the type and cost of improvements.

Consider these payback estimates* for the most typical home improvement projects:

*Compiled from several published surveys

Understanding payback value
Payback value depends heavily on the real estate market and prevailing property values. If the market is slow, expect to see less payback than you would in a fast market. Also, consider the neighborhood: If you remodel your house to twice the size of the other homes on the block, it is unlikely that you will be able to sell at double the price. Which improvements return more than others? Minor kitchen remodels are always a standout, but the national average for cost recouped is only 88 percent.  In other words, in higher-end real estate areas, if you revamp cabinets, change appliances, and recover your floors, you're likely to get your money back — and then some. But in slow-moving areas, you won't. Bath remodels and major kitchen remodels are a close second.

Issues that can influence payback value include:
Type of improvement
Kitchen and bathroom remodeling projects consistently return the most in resale value and almost always help sell a house. Converting a basement into a family room yields the smallest return on the investment.

Scope of improvement
Projects can be large or small. Sometimes, the cumulative effect of small projects can pay back more in resale value than that of larger projects. Small projects tend to be cosmetic in nature: fresh paint, new doors, garden windows, and ceiling fans. Large improvements involve adding or upgrading living space.


Desirability
Today's fad may be tomorrow's standard. Backyard decks, for example, were difficult to find 30 years ago; now they are common. Decks may not have paid back very much in resale value decades ago, but as decks have become more desirable, their resale value has increased.


Cost
The price of home improvements fluctuates depending on economic conditions and region. If remodeling costs are particularly high in your area (or home sale prices particularly low), you may not recoup as much on your investment as you would if costs were in sync with sales prices.

TIP: If you are financing your home improvements, the best time to apply for a loan is when interest rates are low. The less you pay to borrow money for the job, the less the total cost of the renovations. Find more home improvement tips here.


Final thought: Do Fences Add Security?

Add a perimeter fence - make It tough on thieves!
Depending on your lot's surroundings and its relationship to neighboring houses, a fence may make security sense for you. Thieves don't like fences because they make it hard to enter a property. Securely locked gates also make it difficult for thieves to haul things away. A security fence should meet these three criteria:

1. Plan your fence to be at least 40 inches tall. Anything shorter won't present enough of a deterrent to someone trying to get into your yard.
2. Choose a style that doesn't block the view. Tall privacy fences, for example, actually can be a security risk: Once the intruder is over the top, the fence provides excellent cover for the break-in.
3. Make sure your fence will meet local codes. City codes (and some association covenants) often restrict the height, style, and placement of residential fences. And before you dig that first posthole, it's wise to have your lot surveyed to make certain your new fence actually goes up on your property and not someone else's.