Don’t Expect an Investment Return on Some of Your Home Improvements
Q: At least once a year I see surveys that show you can recoup 80%, 90% or even more from certain home remodels, such as a new kitchen or a bathroom addition. Does it make sense to tap into our home equity to do a remodel so that we can sell our home at a higher price?
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A: Any other investment that promised to return 80 cents on the dollar would be dismissed outright as absurd. But we homeowners are a funny lot. Given how much money we spend on a house, and keep spending on repairs and maintenance that never shows, it’s no wonder we want to break out once in a while and put our stamp on the property. If we can convince ourselves that we’ll get at least part of our money back, so much the better.
That’s why companies that profit from remodeling love to put out those surveys you were referring to. If you look at the fine print, you’ll usually find that most of those percentages are based on the notion that you sell your house within a year of doing the work. Now, ask yourself: Would any sane human being spend $30,000 on a kitchen remodel, live with the dust and the shut-off plumbing and a hot plate for four months (the contractor promised it would take 30 days, but he disappeared a month ago, and the subcontractors haven’t been paid yet, and . . . )--and then sell the house, knowing he or she was only going to recoup $24,000? If you don’t sell, that kitchen starts to date as soon as the plumbing is turned back on. In five years, normal wear and tear and changing fads will have shaved even more off the potential value of your remodel. Meanwhile, you’d have been earning interest on that money had you saved it.
That’s not to say you shouldn’t do home improvements. Just be smart about them.
New paint and landscaping are relatively cheap, and they can pay off well beyond their cost, says Walt McDonald, past president of the California Assn. of Realtors and a broker with more than 30 years’ experience selling homes. That’s the sort of thing you should do if you expect to sell within a year.
If you plan to be in your home a few years longer, you need to do some snooping to find out what features and amenities are common in your neighborhood. Your neighbors, for this purpose, are your resale competitors. What you want to do is bring your home up to the standard of the neighborhood, without over-improving beyond that, said Alan Hummel, an expert appraiser from Des Moines and chairman of the Appraisal Institute’s residential committee. That could mean adding a bathroom if you’ve got only one and your neighbors have three, or putting in a master bedroom suite if every other house sports one--or if there’s a lot of new-home construction in your area. Master bedroom suites are very in just now.
The key is to do something you and your family can enjoy, and to balance that with the cost and the potential increase in resale value, Hummel said.
Real estate agents also say updated kitchens and bathrooms can help sell a house--but again, don’t overdo. New appliances and fixtures, refinished cabinets and new flooring might be enough to freshen things. If you’ve installed an Italian marble toilet, six-nozzle circular glass shower and an eight-person whirlpool bath, and your neighbors all have fiberglass tub-shower combos from the local home products mega-store, you’re in trouble. There’s no way you’re going to recoup anything near what you’ve “invested” when you sell; buyers who expect those kinds of dazzling add-ons are going to want a better neighborhood.
In fact, if you already have the biggest and nicest house in your area, consider taking all that equity and moving up to a better house. Let someone else have the hassle of remodeling.
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Q: I took offense with your berating of the driver who had six speeding tickets (Aug. 16). If someone has to do a lot of driving, that person is going to wind up with a lot of tickets; that’s just the way things are.
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A: That may be the way things are with you, Speedo. But there’s nothing forcing your pedal to the metal. Although it’s true that you’re at greater risk for accidents if you drive a lot--you can’t always avoid the other nitwit--you can always keep your speed under the limit. You just have to want to, and six tickets, plus ridiculous insurance payments, should be more than enough motivation.
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Liz Pulliam is a personal finance writer for The Times and a graduate of the certified financial planner training program at UC Irvine. She will answer questions submitted--or inspired--by readers on a variety of financial issues in this column. She regrets that she cannot respond personally to queries. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.
