Resale value should be a critical piece of the puzzle IF you are going to sell your home soon after the remodeling project is done. If, instead, you plan to live in your home for a while after investing dough into an alteration, then this investment is more about your enjoyment of the new and improved space.
So often these days homeowners are plowing more money into their homes than resale-value may warrant — for some valid reasons:
- If the local real estate market is depressed like it is right now (this was written in November 2010), investing for the long haul assumes that the market may normalize; values may/should/could return to some semblance of earlier values. So making long-term decisions now, based upon today’s deflated resale values, will probably look like a poor investment. But long term investments are made for resale values later — down the road — and not for today’s market.
- Most folks are spending more time at home, and living in their homes for a longer period of time then they used to. So, for example, you can watch a streaming movie at home for free instead of paying $10/person going to the theater. So perhaps its prudent to invest in a nice flat screen TV at home instead. Over time it’s the better investment.
- It’s common to hear someone say that they’re putting more money into their home now because in the past they may have performed a remodel just before selling their home and never got to enjoy it themselves!
We like to approach projects from the perspective of master planning. Even if the project needs to be broken into phases, each chunk of progress will make good sense if the project as a whole will create a home you’d like to live in for the long haul. It’s fair to say that most of our clients, when they invest big bucks into their home, are thinking and saying ‘I intend to be carted away from this home when I can no longer take care of myself’.
So it comes down to your sense of place. If you look at spending money on a remodel purely as an investment, it may not pencil out financially. That said, it’s still important to know the resale implications of your project. In order to inform yourself about this data, you can refer to the Cost Versus Value Study referred to earlier, and/or consult with a local, ethical real estate professional. We use the word ethical here because the typical realtor, seeking a commission, only makes money if you sell this home and buy another. It may be in their interest to talk you out of doing the remodel!
If, instead, you look at spending money on a remodel as an investment in your happiness and lifestyle, then, over time, the value of your home will probably catch up to the expended money. In the meantime your enjoyment at home, your sense of place and sense of stewardship, improve.
In summary, how much should you invest in your home? It depends upon far more than resale value. What else does it depend upon? Ah… there’s your homework… to define the factors and think them through, knowing that you’ll be comparing apples and rocks; comparing resale value to a more functional kitchen; comparing resale value to a more energy efficient home.
Perhaps spend part of a day looking at other homes that are on the market. What do they cost and what would you have to spend in remodeling dough, if anything, to make it right for you?
Perhaps what’s most important is for you to kick back and imagine your home… finished; remodeled the way you presently dream it could be. Would you spend many more years there because of the remodel? If so, then perhaps you should go for it. If not, then, perhaps… punt.
Move or improve? We’ve observed clients take years answering this question. And it’s no wonder. This balancing act of resale value and project cost is a very common challenge. A first realistic look at costs tends to refine one’s direction of travel. Take your time, think a lot, confer with others. After all, we can help you with remodeling costs but you’ll need a real estate professional to get a grasp on the value of your ideas.
Yet another professional you may want to talk with is a lender.
How will you finance the project? Will a home equity loan provide you sufficient funds for your alteration? Or will you need a construction loan, focused upon providing you more dough than an equity loan?
This is, after all, the value of master planning.
And we are masters at this!