Home Improvements That Make "Cents"

A gourmet kitchen! Spa bath! A new deck! The excitement of living in a newly remodeled home is wonderful, but wouldn't it be better if you knew that your improvements were also a wise investment? Knowing a little bit about the return on investment you can expect may not dictate the changes you ultimately decide to make, but it will let you go into the process with realistic expectations and, hopefully, let you enjoy your "new" home even more when the project is completed.

Will your investment payoff?
Americans love investing in their homes both for personal satisfaction and for financial return. In fact, home remodeling accounts for about 40% of all residential construction spending-over $230 billion in 2006. In addition to a higher return at resale, the right changes can make your house more appealing to live in, help to bring more potential buyers in the door and potentially reduce the number of days it's on the market. If a financial return is important to you, there are things you should think about before diving into a remodeling project.

• How long do you plan to-stay in the house? Like most investments, it can take time for that new equity to grow, so most renovations should be considered a long term investment. If you're not planning to stay in your home for at least three years, it's best to restrict your investments to exterior curb appeal enhancements and regular maintenance. Making sure that all major systems like plumbing and electrical are in good condition pre-inspection can help ensure a good sale price.

• Keeping up with the Joneses. People shopping for homes in your neighborhood expect a certain standard, and if your home doesn't make the grade, an upgrade may be in order just to stay competitive. For instance, if most of the homes have one-and-a-half baths or more and you have only one bath, adding an extra half bath will more than pay for itself. The same is true if most of the homes are 20 years old but have upgraded kitchens. On the other hand, a high-end kitchen remodel might be de rigueur in one neighborhood but a waste of money in another.

• Don't overbuild. The flip side of building up to standard is that overbuilding beyond the neighborhood standard can really work against you financially. If you expand your neighborhood standard three­bedroom, one-and-a-half bath home to five bedrooms and three baths, you're probably pricing yourself out of the market, as people with that kind of cash will likely shop in a different neighborhood.

• Know what's hot in your region. Some home improvements have broad appeal no matter where you live, but others seem to be in high demand in certain regions only. For instance, a kitchen or\ bath remodel, deck addition or basement remodel can bring big bucks in the West while on the East Coast, some of the hot improvements are those that save energy and add attic bedrooms.

• Check the pulse of the real estate market in your area. When real estate prices are rising you're more likely to gain an increase in your renovation investment. If the market is cool, however, it can be harder to get back those improvement expenses.

Other things that can affect the return on your investment
Kitchen and bath remodels consistently offer good returns because most buying decisions are based on emotions. When home buyers walk into a nicely redone kitchen or bath, or grand new master suite, they enjoy the thought of spending time there and the knowledge that they won't have to invest time and money remodeling it themselves. Some other improvements such as a new roof just aren't perceived as "sexy."

When planning your remodeling project, be sure you're maintaining the integrity of your home's original design. Nothing turns off a buyer more than an add-on that looks like an afterthought, so try to stick with either the same materials or complementary ones. Also keep in mind that a lifestyle project such as a pool, sauna or wine cellar may be meaningful to you, but won't necessarily appeal to other buyers or add up to additional dollars at resale.

Planned well, home renovations can add enjoyment for you and increase your home's value in the future.