Home Remodeling and Return on Investment (ROI)
This is a 5-part series of articles on how to get the best ROI on your home remodeling and improvement projects. Home remodeling is big business. It accounts for about 40% of all residential construction spending and about 2% of the US Economy. From 2001 to 2005, spending on home remodeling grew 40% when it reached $215 billion in 2005. And 2006 is projected to reach over $230 billion in home remodeling expenditures according to the NAHB. Why so much money? Well, the boom was fueled by rising home costs along with lower interest rates and strong homeowner equity. But now that interest rates are higher, the record pace is slowing but still strong.
So everyone wonders, "Is it worth the money to remodel my home?" Overall the answer is "Probably." The reason home improvement and remodeling is a $230 billion industry is because people are finding value in home improvement projects.
However you should not expect to fully recover the amount of the remodeling investment right away. Typically you can expect between 80% and 90% back on your home improvement investment dollar, sometimes more, sometimes less, within the first year or two. With the proper remodel, you can increase and even make money on the improvement the longer you stay in the home. As with many investments its the quiet power of compounding that creates good returns. By being in the home a longer period of time, you give the real estate market time to increase and you leverage the remodeling investment as property values grow.
At a personal level, you should consider three things when deciding if a home improvement project is a good investment or not: How your project impacts your home's appraised value; How long you plan to be in the home; How strong the resale market is in your area.
Which projects are are the best investments, and how deluxe should they get?
Since projects come in all kinds of shapes and sizes, Ive organized them into 5 home remodeling / home renovation categories.