Renovating, remodeling, and improving your home can be great ways to give it a makeover, gain extra space, or otherwise make it possible for you to stay in one place longer. But will they increase your selling price? The day may come when you want or need to sell. In preparation for that possibility, realize that not all home improvements are created equal. Some will increase the value of your home, and some will actually make selling more difficult. Here's how to tell the difference.
Certain projects add more resale value than others. Here are some that generally have the best financial impact.
Almost any project has the potential to negatively affect resale value. A general rule is that the more personal your choices are—meaning they're made to suit your particular lifestyle or taste—the less likely they are to have a positive effect on resale value.
This doesn't mean you shouldn't do the project. It just means you shouldn't expect it to add value to your home and should anticipate that your home could be more difficult to sell as a result. For example, while a soundproof music studio might be your dream come true, it won't be practical for a young family looking for an extra bedroom for their new baby. These types of buyers won't pay the premium it cost you to build the studio and they might even be turned off by it.
Here are some general indicators that a project might have negative resale value.
Luxury upgrades. While no one wants to see the absolute cheapest renovations in a home, the highest-quality upgrades often don't have the return of mid-range ones, unless you're in a very high-end home. Marble floors in the bathroom or custom cabinets in the kitchen might be nice, but don't assume buyers will pay proportionately for these luxuries.
Rooms that don't fit with the floor plan. Converting the back patio to a family room might be a perfect way to add more space to your home, but if your dining room window now looks into the family room, it probably won't be well loved by prospective buyers.
Garage conversions. Garage conversions can give homeowners much needed space, but buyers like having garages, too. Thus converting this space usually won't increase value.
A swimming pool. A pool might seem like the ultimate luxury to you, but when it comes to selling, it could be more of a hindrance. It could be seen as a safety hazard by parents with small children. Consider also whether it's usable most of the year—while a pool might be a major selling point in parts of Florida and California, it could be a serious liability in Minnesota or Wisconsin.
Even if you do the right kind of projects, you're not guaranteed a high return on your investment. Before deciding whether an improvement will add value, consider some more general factors.
Your changes should conform to the neighborhood. If you live in a neighborhood of two-bedroom bungalows and you add a second story to put in a couple extra bedrooms, you aren't likely to see a high return. Buyers looking for homes that large won't be looking in your neighborhood. On the other hand, if many of your neighbors are making similar improvements (perhaps because these affordable homes are on large lots and in a great school district), you might fare well doing the same.
Upgrades to a newer home probably won't have the same impact that they would in an older home. In a 1950s home, an original kitchen's aged or out-of-style cabinets and floor tile might make buyers think: "I guess we'll start with a kitchen remodel!" The same isn't necessarily true of a house that's just a few years old, which means you're less likely to increase a newer home's value significantly by remodeling.
Your upgrades should be in sync with the rest of the house. Focusing narrowly on only one room—the perfect master suite, for example—can be a mistake. If the rest of your house was last updated 30 years ago, it will look even shabbier in comparison to the upgraded suite.
Stay within the price range for similar homes. From a practical perspective, you shouldn't expect to recover as much from improvements to a modestly priced home as you would for improvements to a high-end home. Spending $30,000 remodeling a kitchen with top-of-the-line appliances in a home that costs $150,000 won't have nearly the return the same remodel would in a $500,000 home.
The real estate market always has its share of "flippers"—real estate investors with varying levels of expertise who buy properties and fix them up, only to turn around and sell them for a profit a short while later. However, before you get dollar signs in your eyes, realize that it's mostly the pros who can make a living at this. They've got contractors on staff and a fine-tuned idea about how to get the highest return for the lowest project costs.
And the flippers are keenly aware that even projects with the highest resale return don't necessarily pay for themselves. To see what you can expect to recoup, visit Remodeling Magazine's Cost vs. Value Report. Then ask yourself how important it is to recoup your costs. After all, part of the idea is to enjoy the house while you live there.