PERSONAL FINANCE : FIRST STEPS : MAKING THE MOST OF REMODELING
With home prices soaring and interest rates fairly low, a growing number of homeowners are staying put and fixing up instead of moving out.
Americans spent a record $94 billion on remodeling last year, thanks mainly to the easy availability of home-equity loans and the soaring cost of larger houses. Another $98 billion of work will likely be done in 1988, experts say.
But not all of that money will be wisely spent, at least from a financial point of view. Although adding or remodeling a bathroom, family room or kitchen almost always pays for itself at resale time, don’t expect to recoup all the costs of adding such luxury items as a pool or spa.
“If you want to make the most of your remodeling, you have to strike a balance between what you really want and what the resale market will pay for,” says Bryan Patchan, executive director of the National Assn. of Home Builders’ Remodelors Council. “Adding a roller-skating rink might bring you lots of pleasure but don’t expect the next buyer to pay for it.”
As a general rule, if you add on to a house that’s smaller than those around you, the addition will more than pay for itself.
Conversely, you’ll only recoup a portion of your costs if the remodeling job makes your house one of the biggest or most expensive in the area.
Rooms that people use most usually pay off best. “Homeowners who add a living room, family room, den or library almost always get all their money back when they sell,” Patchan says.
A new bathroom may be an even better deal. “It’s not unusual to recoup twice what you paid for it,” says Temmy Walker, co-owner of Studio City-based James R. Gary Co. “Nobody wants to wait to use the toilet.”
Adding a bedroom is a chancy proposition. Expect to recoup most of your costs if the addition brings your home up to par with neighboring houses, but expect no more than a 50% pay back if it makes your house the biggest on the block.
Fireplaces are a much better investment, even in sunny Southern California. “They aren’t really useful but they’re very romantic,” Walker says. “Figure on getting all of your costs back, plus a little bit more.”
Landscaping can also pay off, especially if it’s well done and fits in with the rest of the neighborhood.
If you want to add a pool or spa, do it for pleasure, not profit: Buyers rarely pay more than 50% of their cost. “Hot tubs aren’t faddish anymore, and pools are expensive to heat and take up a lot of room,” Walker says. “And everybody has heard horror stories about kids drowning in them.”
Outlays for energy-saving improvements are also rarely recouped, in part because tax breaks for such items have been curbed and energy costs are down. But if you plan on living in the house for two or three years, you’ll probably recapture the cost through lower utility bills.
How much do home-improvements cost? If a professional does the work, expect to pay $60 to $75 a square foot to add or expand a bedroom or family room, advises Chuck Smith-Kim, a spokesman for the nonprofit Owner Builder Center in Berkeley. Bathrooms and kitchens cost $90 to $125 a square foot, depending largely on how much plumbing, cabinetry and electrical work is involved.
A fireplace and chimney usually costs at least $3,000, but a self-contained unit with a false-front hearth can be purchased for about $1,500. You can spend $100 to $300 to plant your own grass, shrubs and flowers; a professional landscaping job, including design, can cost upward of $1,000.
Pools typically cost $10,000 to $20,000, and hot tubs start at about $2,000.
REWARDS OF REMODELING You don’t have to add a room to make your home more valuable. Remodeling is less expensive and still rewarding. Here are some examples of average costs and returns on renovations for a 25-year-old ranch-style home. Returns on other homes will vary.
Type of Professional Return Do-it-Yourself Return Renovation Job Job Central air $2,100 111% NA* NA Interior face-lift $3,900 105% $2,020 202% Bathroom $3,590 98% $1,290 228% Fireplace $3,010 85% $1,280 200% Kitchen $6,930 85% $3,150 184% Exterior paint $3,500 18% $190 1,301% Furnace replacement $2,100 82% NA NA Deck $3,500 66% $1,010 219%
* Not available Source: Practical Homeowner magazine
