Home Improvements That Pay You Back

Create a profitable dream house through selective remodeling. By Dean Johnson

The "cocooning" trend--spending more leisure time and doing more entertaining at home--is contributing to a big boom in the home improvement market. Instead of spending money on expensive trips or vacation homes, families are investing in their homes They're adding decks or home entertainment centers and making other improvements that increase their comfort and convenience.

Couple this with the fact that few people. especially first-time homebuyers. can afford their dream home, and you have a lot of home renovation going on. Since lower mortgage rates have lowered house payments, homeowners can afford to renovate their homes over time. They can create the outdoor space, master bedroom suite, spa, or just about whatever they've always wanted. Rather than stretching their budgets on high down payments and mortgages, these smart shoppers are hunting for less expensive houses with potential. ones that need just a few strategic improvements.

The key consideration as you plan your home improvements is deciding how long you'll remain in that home. Unless you plan to stay there the rest of your life, try to make improvements that not only provide comfort and convenience for you now but also increase your homes future resale value.

If you plan to move soon--within a year or two--limit your projects to cosmetic improvements, such as new paint, wallpaper, or carpeting, that you can do yourself at little cost. Generally. these improvements will give your home a fresh. clean look, add to its market value, and create a favorable impression that makes the house easier to sell. Frequently, these fixups will cost as little as $2,000. and the investment can be parlayed into as much as a $5,000 increase in your home's market value.

If you plan to stay where you are for at least three to five years, you can consider more extensive renovations. You may want to update the kitchen. add a room. or finish an upper or lower level. The longer you plan to remain in your house, the more you can do. Your imagination and budget are your only boundaries.

Return on Investment. The caveat of home improvement comes in the spending. We laughed at Tom Hanks and Shelly Long sinking thousands of dollars into an old house in the movie The Money Pit, but it brought out two truths about home renovation: Every project costs more and takes longer than expected. So when you start making plans to hammer and saw your way into your dream house, estimate high and keep in mind the words return on investment.

Whether you hire professionals or do the renovation yourself, be aware that your investment will not always result in a dollar-for-dollar increase in the value of your home. Although some homeowners do make a profit on their remodeling investment. statistics from the National Association of the Remodeling Industry reveal that some homeowners won't even recover their costs. Depending on the project and the amount of professional labor involved, you may retrieve as little as a third of the expense.

So before you start any home improvement project, do your homework. First, get estimates on the costs. Then study the local real estate market to be sure you're making improvements that homebuyers want and will pay for.

And don't go overboard. Getting your money out of a house priced well above neighboring houses will be difficult. As a general rule, the total of the Improvement costs plus the current market value of your house should not exceed the value of any house in your neighborhood by more than 20 percent. So if you own a $95,000 house where the top houses are worth $100,000, limit your spending to $25.000 or less.

Good Values. On average, interior facelifts and bathroom and kitchen renovations give the best return on investment. Other less expensive projects that yield a good return are decks, landscaping and fireplace additions. Following are some examples of what you might expect to recoup from various projects.

Siding. Adding new siding, especially when you use siding with insulation boards, is a bargain no matter where you live. A professional job may cost more than $6,000 but will bring a 100 percent return on investment. You can nearly double that return if you can do the job yourself.

Decks. Adding a deck that lets you add square footage to your living space gives you one of the best returns on investment, especially if you do it yourself. A do-it-yourself deck will average a little more than $1,000 but should add about $1,500 to the value of your home. And you may be able to recapture 40 percent or more of the cost of a professional deck addition costing up to $3,500.

Kitchens and bathrooms. These renovations pay off fairly well regardless of who does the labor. For example, you can recover more than 100 percent of the expense of a professional bathroom addition and as much as 160 percent if you do the job yourself. You also gain more by adding a simple, new bathroom than by turning your current one into a luxury bath. Kitchen renovations recapture about 70 percent of a professional job and 156 percent if you do it yourself.

Fireplaces. Adding a fireplace nearly always pays. The addition can cost about $1,200 in materials and $1,700 in labor. But. depending on where you live, a fireplace can add at least $2,000 to the value of your home. That's more than a 70 percent return if you hire a professional and 260 percent if you do it yourself.

Doing It Yourself. Because labor generally accounts for at least 50 percent of the cost of a project, you often recover twice as much of your investment if you do the job yourself. Novice do-it-yourselfers, however, need to be cautious about which jobs to try and which to leave to the pros. Appraisers say a poor quality renovation may actually decrease the value of a home, since potential buyers often have to spend extra money to correct the botched job.

If this is your first home improvement project, you may want to start small. Landscaping, for instance, is a fairly simple project that reaps good financial rewards. You have a variety of options, and you can do the job as your time and budget allow.

Although you could recapture up to 80 percent of a professional landscaping job, you can get several times that if you do it yourself. Your local nursery is a great resource for helping you select the trees, shrubs, and flowers most appropriate for your soil type. If you really want to spruce up your landscape, install some low-voltage outdoor lighting or add a patio, some walkways, or even a deck or gazebo.

Outdoor lighting is rapidly gaining in popularity as people make their backyards into outdoor living areas. Contractor installed "lightscaping" for a typical city lot can easily cost as much as $2,000. But a kit of ten low-voltage lights costs only $200, and just two kits would take care of the same size lot.

If you think a particular project requires more skill than you possess, hire a contractor. Doing a renovation job yourself may save money. but there can be advantages to hiring professionals. They often finish the job faster and produce a higher quality of workmanship.

Buying It Yourself. If you don't have the time or talent to c do your own home improvement but c can't swing the payments for a professional job, consider the buy-it-yourself E route. If you're a savvy shopper, specifying and buying your own materials can save up to 15 percent on any home improvement job. You can also often choose from a wider selection of products.

For example, specifying and buying your own materials to build a 15-square-foot redwood deck can save 10 percent on a fully contracted job. By using pressure-treated southern yellow pine, the least expensive of the woods that can weather the elements, you cut your cost by another 25 percent.

Loss Leaders-Some home improvements may turn out to be more of a liability than an asset at the time of sale. These include in-ground swimming pools, hot tubs, and sliding glass doors. Potential buyers might not be able to see past the hours of maintenance work required by pools and hot tubs. And sliding glass doors may be perceived as an unnecessary risk in an area where security is a concern .

Other renovations that may cost more than you'll ever recover include sun-space additions (29 percent recovery) and skylights (33 percent). But remember, these are national estimates. Even though the national average return on a project is low, it may be a real winner where you live. For example, in Minnesota, putting vinyl siding on your home will net more than a 70 percent return on a professional job, 450 percent if you do it yourself. The national average, however, is just 31 percent and 193 percent, respectively. To find out what any improvement is worth in your neighborhood, contact a local real estate appraiser..

Dean Johnson, a former builder, is co-host and executive producer of the nationally syndicated PBS-TV show "Hometime."