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According to the National Association of Home Builders, Americans spend more than $200 billion on home improvements each year. A 2012 NAHB survey shows that remodeling projects have increased in recent years, with kitchens and bathrooms the most common renovations. But every project isn’t necessarily a good financial value. If you’re thinking of remodeling your home, your project should have a good potential for return on investment.
Comparing Cost to Value
If you look at the past few years, home remodeling projects were not strong moneymakers for owners because the housing market was down. But “Remodeling Magazine’s” 2013 Cost vs. Value report shows a reversal in that trend, thanks in part to the economic recovery. The magazine’s annual study compares the construction costs of leading home improvement projects against recovery of those costs at resale. The latest report showed an end to a six-year decline in value, with the average cost-value ratio rising to 60.6 percent.
Target Return on Investment
When you choose a project, aim for at least the national average ratio documented in the 2013 Cost vs. Value report. While you have to balance the likely investment payoff against your needs and desires, there are some projects that simply don’t pay enough dividends. Swimming pools, home offices and garages are improvements that don’t necessarily appeal to everyone, so their potential for return on investment is lower than projects with universal charm. For example, the National Association of Realtors estimates that an in-ground pool adds less than 8 percent to a home’s value, while an above-ground pool adds nothing.
Some of the best improvements come with a smaller price tag. In “Remodeling Magazine’s” 2013 study, adding a steel entry door at a cost of $1,137 returned $974 at resale, or 85.6 percent. A new wood deck returned 77.3 percent of its cost. While adding a garage returned just 63.7 percent, replacing the garage door netted a 75.7 percent return. There’s a good reason kitchens are among the most popular rooms to renovate (69 percent of 2012 home projects). A minor kitchen remodel costing $18,527 returned $13,977 or 75.4 percent of its cost while a major mid-range kitchen remodel returned 68.9 percent of its $53,931 cost at resale.
If you plan to improve your home for resale, talk with a professional real estate agent. The National Association of Realtors says there are three key home improvement areas: the kitchen, bathroom and exterior. But national trends are just that. They don’t necessarily reflect the interests and needs in your community or even in your neighborhood. A real estate agent can tell you what features are most popular and what improvements return the highest percentage of your investment.