Remodeling is a Poor Investment Strategy
By Nick Gromicko and Rob
Remodeling can dramatically increase the quality of life for
building occupants, but if you are considering a remodel strictly
as an investment, think twice about it.
Remodeling is rarely a
sound monetary investment.
According to a report published by Remodeling Magazine, most
remodeling projects add only 60% to 80% of their cost to the
home, and no projects, on average, yield any
positive return. Home upgrades are thus more accurately described
as consumer spending than as true investments, which ordinarily
have a decent chance of seeing some kind of profit.
Source: Remodeling Magazine, 2008
% of Cost
Recouped in Resale
minor kitchen remodel
master suite addition
home office addition
As the report deals only with averages, it is still possible
for individual remodeling projects to yield positive returns. A
wooden deck added to a mid-range house on the Pacific coast, for
instance, will add more value than the construction costs nearly
half of the time. Even the most wasteful of the projects analyzed
by the study, such as the addition of a sunroom or a backup power
generator, are bound to reap a profit in rare instances. Also,
remodeling projects are more likely to be profitable in houses
that are inexpensive for their neighborhood. But, by and large,
remodeling projects should be undertaken to improve quality of
life for household occupants, not strictly as monetary
investments. While you will lose more than a third of what you
put into a family room addition, for instance, maybe your family
will enjoy the addition enough to more than counter its
Remodeling is also a cheap alternative to house-swapping,
which can cost 10% of your current house's value to real
estate commissions, moving costs, and selling expenses. If your
home update would cost less than the costs accrued by
house-swapping, or if you canâ€™t
live outside your current neighborhood, the remodeling
project might be worthwhile. If you do choose to remodel your
house, as always, have the project inspected by an InterNACHI
If you are committed to remodeling in order to add resale
value to your home, avoid the following mistakes:
- upgrading your house in any way that will make it bigger or
fancier than most others in your neighborhood, as such remodels
are unlikely to add much value;
- adding pools or spas, as they repel as many buyers as they
attract, in most markets. These upgrades often require
maintenance that buyers donâ€™t want to hassle
with, and they pose a drowning risk to young children. Ask your
InterNACHI inspector during your next inspection about remodeling
projects that prospective buyers may find dangerous.
- indulging in your personal tastes rather than aiming to
please prospective buyers. Bold statements, such as brightly
colored appliances, will repel many buyers.
- trusting TV shows that are based on the premise that
remodeling is a true monetary investment. These shows are
successful if people watch them, not if their claims are based in
reality. Buying anything at retail cost and hoping to resell it
at a profit â€“ especially in the future, when
the item or project has become dated â€“ is
rarely a winning financial strategy.
Low-Cost Alternatives to Remodeling
Real estate agents often recommend the following fixes, as
they are likely to return more than their cost:
- Refurbish rather than replace. Refinishing or re-facing
cabinets is usually less expensive than it costs to replace them.
Re-glaze sinks and tubs to extend their lives and avoid the high
price of replacing them.
- Rethink how you use space. While adding floor space may seem
like a reasonable way to deal with a space crunch, you can
probably achieve the same result by ditching the clutter. An
off-site storage unit can be used to free up space in your
- Re-purpose a room. Never use the guest bedroom? Maybe you can
turn it into an office or a dining room instead.
- Paint. Paint can transform the look of a room or house, and
it is inexpensive and relatively easy to apply. Hire a
professional or do it yourself.
- Brighten the house by removing heavy curtains, washing
windows, and trimming back branches and bushes that cover
- Deep-clean. Scour your house from top to bottom.
- Clean up landscaping. Trim bushes and hedges, rake leaves,
clear downed branches, plant flowers and replace mulch.
- Use staging techniques. Rearrange furniture and
dÃ©cor to highlight the positive aspects of the
room and create an inviting space. While you can do this one
your own, professional staging services are contracted to tweak
color and furniture to create an emotional appeal. Consider that
a large segment of prospective home buyers will preview
homes on the Internet, and staging can dramatically enhance a
In summary, remodeling is often a bad investment strategy,
and inexpensive alternatives may achieve the same end.