Quality work–As mentioned, it pays to shop around for a contractor whose work will show the money you put into it. Image: Alessandro Cancian/Shutterstock.com
Keeping your home well-maintained and in good repair is certainly necessary if you want to protect a major investment in your retirement years. Some people go further, though: they want to make major capital improvements.
Are home improvements worthwhile? Probably, if you enjoy a new kitchen, say, or central air-conditioning. A larger question, though, is whether they make sense as an investment. That is, if you spend $40,000 to install new kitchen cabinets and appliances, does that increase the value of your house by more than $40,000?
Here, the answer is probably not. However, some improvements hold their value better than others. In the above example, if the $40,000 you put into your kitchen increases the value of your house by $30,000, the “payback ratio” is 75 percent. If the increase is $20,000, that’s a 50 percent payback ratio.
Now, every situation will differ, depending on the quality of the work done and the way the improvements blend in with the rest of the house. However, it is possible to make some general statements: certain types of home improvements tend to hold more value than others.
Generally, homeowners who improve their most frequently used rooms and those who add on more living space enjoy the biggest payback. People spend a lot of time in certain parts of the home, especially the kitchen and the bedroom. Making these rooms newer and more spacious adds value to your home.
The combination of newness and more space can translate into more resale value if other factors are present:
Curb appeal–Your home’s exterior should create a desire to own the home and to live the lifestyle it represents, thus drawing prospective buyers inside to see your remodeled kitchen and bath. Painting the outside of your house is a relatively cheap way to add curb appeal, which makes painting a smart move, just before you put your house up for sale.
Similarly, making your yard look better improves curb appeal. Edging your lawn, mulching, and planting some shrubs are all good ideas. However, if you put $10,000 into backyard plants you shouldn’t expect to see all that money back, in higher resale prices. Hardscaping, however, could be a worthy investment – in particular if it converts an underutilized area of the property into an appealing outdoor living space.
Neighborhood cohesion–If most of the homes in your neighborhood don’t have a second story while you add one, the neighborhood could drag down the value of your home. On the other hand, your home will command a better price than comparable homes if you have dramatically improved your kitchen while neighboring houses still have their original kitchens.
Quality work–As mentioned, it pays to shop around for a contractor whose work will show the money you put into it.
Don’t get soaked–Despite what you might think, a swimming pool is one of the least valuable features you can add to your home in terms of resale value because it limits the number of buyers who want to look at your home. Only in some parts of the country (such as Florida) does a pool increase the value.
Thinking of Selling
If you are thinking of selling your home and moving in retirement, however far ahead that action might be, you can take steps now to improve its value—and better yet, you can benefit from those improvements until that day comes.
* Kitchen and bathroom improvements tend to rate the highest, in terms of payback. Creating more space through additions such as sunrooms—or even more extensive additions—also can return as much as you invested, or maybe more, especially if your home is on the smaller side.
* Built-in additions are preferable to anything movable. Consider built-ins for kitchen appliances, bookshelves, bench decks, and home theater systems.
* If security is a concern, install a sophisticated home security system connected to a central station, which will call the police in case of an emergency. Extreme steps such as putting bars on windows can detract from its value, though.
On the low end in terms of payback: swimming pools and customized spaces such as wine cellars, fancy home offices and home theaters that would not be of much value to some potential buyers.
Also, don’t neglect the outside—“curb appeal.” Your home’s exterior should create a desire to own the home so it’s vital not to skip regular paint jobs and yard work. Edging your lawn, mulching, and planting shrubs are all worthwhile activities.
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