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Saturday, April 19, 2014

Is Remodeling A Good Investment?

Should I Remodel my Kitchen and Bathroom?

Dear Dr. Penny Pincher,

Our house was built in 1912. The kitchen and bathrooms are dated and probably need updating.  For example the kitchen countertops are circa 1980. The bathrooms were updated about the same time.  Both areas are acceptable functionally and aesthetically. Due to our age we will probably sell the house and move to and apartment or condo in the future. Should we consider doing updates to enhance the value and selling potential of the house or leave both areas as they are?  What are other considerations in this decision?


A Penny Pincher Follower

Dear Follower,

It is always painful to spend money, but it is less painful when you know you can get some or all of your money back.  Real estate is generally a good investment, but a real estate investment comes with expenses such as paying property taxes and upkeep on the property.

The good news about kitchen and bath remodeling projects is that you typically get about 50 to 70% of the money you spend on remodeling back in the form of increased property value.  For example, if you spend $10,000 on kitchen and bath upgrades you may be able to sell your home for $5,000 to $7,000 more.  As you can see, you do not typically get all of the money you spend on remodeling back.

Kitchen and bath remodeling are among the highest payback projects that you can do.  If you have the money, remodeling projects can be rewarding and can help you stay in your current house longer.  When you sell your house, you'll likely pay around 6% commission to a real estate agent.  It may be worth spending some money to avoid that expense.  This article has some estimates of how much different remodeling projects add to the value of your home.  I think some of these numbers seem a bit high, but this provides an idea of what type of projects add the most value.

While a good remodeling project can increase the value of a home, a poorly done project or unfinished project can decrease the value of a home.  A lot of potential home buyers will not even consider buying a house that needs work done.  

I would suggest setting a budget for your remodeling project and trying to get the most improvement you can for your budget.  It is a good idea to get estimates from several contractors and pick one with good references.

Good Luck!

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