Tuesday, April 22, 2008

Remodeling: Cost Vs. Value

Investors who are looking to remodel homes for resale should always keep in mind the cost vs. value of the alterations. For example, remodeling a kitchen is worth considerably more than remodeling a spare bedroom. But what about deciding between a deck and a bathroom upgrade? Is better to replace the windows or do a new roof? Investors who are pondering these questions can refer to the remodeling Cost vs. Value guide issued by Remodeling magazine each year. There are also some additional considerations investors should keep in mind.

The remodeling Cost vs. Value guide is a helpful resource for investors, as it helps put a figure on what the actual value of a particular remodel is compared to its cost. For example, the 2007 Cost vs. Value guide says that adding a deck costs an average of $10,347 nationwide, but only increases the home’s value an average of $8,835. That means that every dollar spent on a new deck equals a loss of 0.146 cents, which on the surface would appear to be a poor investment. As most real estate investors know, though, real estate numbers should not be looked at nationally because real estate differs widely from one city to another and even from one neighborhood to another.

To help with this, Remodeling provides regional and even city-specific numbers, although their regions are large, so investors would do best to focus on the city-specific figures. For example, a deck remodel on average nationally returns 85.4 percent compared to an average in the Pacific region of 108 percent and an average of 120.4 percent in Seattle. So you can see how much the cost vs. value of repairs can change depending on coverage area of the data. But investors shouldn’t stop their analysis there.

Investors must always take into account the specific neighborhood and the types of homes surrounding the home they are remodeling. A major upscale kitchen remodel might return an average of 99.2 percent of its costs in the city of Seattle, yet if this remodel was done to a home in a bad neighborhood, the returns would be significantly less than that. When remodeling for investment, you should always make sure to keep the upgrades within the norm of the neighborhood. As an investor, you never want to be stuck with the nicest house in the neighborhood.

Used correctly, the cost vs. value data provided by Remodeling can be valuable, but investors need to add their own common sense and analysis to the equation as well.

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