Start the process by understanding the current market value of your home as-is and with your proposed improvements. Talk with a real estate agent who is familiar with your community. He or she can give you comparable listings on properties similar to yours that have sold in the past 6 months. Websites like www.zillow.com or www.Cyberhomes.com will also give you an estimated value for your home.
There are exceptions though, than strictly looking at the market value of your home. Are you a big or little fish on your block? Is your home large in comparison to your neighbors? If so, chances are that your home is at the high end of what the market can support in your area. If your home is smaller or in need of much work compared to your neighbors, adding on or renovating still could make financial sense. Maybe you just love the neighborhood/schools/commute to work, etc. and wouldn’t dream of moving, but can’t stand the circa 1982 kitchen any longer. You have the funds to renovate and that is your mission. There are always exceptions.
Where do you live? Some regions of California, Florida, Nevada and Florida have been more negatively impacted because of the number of foreclosures there. Ask your local realtor how the market is performing in your area, get their impression. On a related note, the website www.ziprealty.com/pdf/2008_3Q_HousingReport.pdf posts quarterly lists of hot neighborhoods in some markets based on the difference between the asking price and selling price of a home. Keep in mind though this data may just be a reflection of smart sellers who know how to price their property.
How long do you plan on staying in your home? You have a greater chance of recouping your renovation costs if you stay in your home for several years after the work is completed. Your home is like most investments, the longer you hold on to them and give them a chance to perform, the better your return on investment (ROI) will be.
Some renovation projects have a better ROI than others. Updating a bath in Chicago has a 64% recoup rate if you were to sell, compared to a 51% recoup rate for a sunroom addition. These figures, listed in the Cost vs. Value Annual Report found in Remodeler Magazine, are at www.remodeling.hw.net/2008/costvsvalue/national.aspx. Get recoup rates broken down by project type, city and national averages.
Is your project a historic preservation? Look to see if your state has a historic preservation program. For example, Illinois has a property tax assessment freeze program. The freeze begins at the start of the rehabilitation for eight years, and then the valuation is brought back to market level over a period of four years. The federal government has a Federal Historic Preservation Tax Credit Program which provides federal income-tax incentives for the rehabilitation of historic income-producing properties. The credit may be subtracted directly from federal income taxes owed by the owner. Confirmation of program funding and eligibility by your accountant is recommended.
Your state may have incentives for smart building methods that are energy efficient. To find out what rebates exist in your state for solar panels, insulation, energy efficient appliances, etc. visit www.dsireusa.org The ROI on these types of energy efficiencies grows quickly because of continuing increases in utility costs. These energy efficiencies can also be used as a strong selling point when you do decide to move.
Work with professionals as needed. The money you spend on hiring an architect and general contractor will save you money in the long run. Their expertise will help to keep your project budget and schedule on track by minimizing problems. Work with them to make sure all details have been thought through during the preconstruction phase. This will save you money by minimizing changes which will affect your budget and lengthen your schedule.
Investigate the right financing options for your project. Is it a home equity loan, construction loan, cash-out refinance, FHA 203k loan, etc., that works best for your budget? Consider the interest rate offered, if the rate is fixed or adjustable, and the loan period. Also don’t believe everything you here in the news, there is financing available, there are loans being written.
Your due diligence regarding the feasibility of your project, along with your strong decision making skills will enable you to make a the right choice regarding your proposed project. Your personal portfolio and your personal space will both benefit from this one!
Karyl Doran
Dwell Development
I found your site on Google and read a few of your other entries. Nice Stuff. I’m looking forward to reading more from you.
Karyl, thanks for the great links to check out and your very informative post! I’m sure a good general contractor can save a homeowner a lot of headaches during the remodeling process.
Sue Boedeker
http://www.valley-virtual-assistance.com
Great article, Karyl. I really appreciate the external resources you mentioned, too. Thanks for educating me!
We’ve just completed the second renovation project on our home in a year and the 3rd one is currently in bid process. All our enhancements has revitalized our space, with a fresh modern look, and when the time comes – - competitively market ready. Thanks Karyl for your pro-insights. It confirms our strategy makes great sense. And we’ve fallen in love with our home again.
Karyl,
Excellent piece!
Your opening line about looking at your personal financial situation and planning accordingly, as any good business owner would do for expansion plans, is right on target. Good advice for all: think ahead, scope out the size of a project and consult with the experts. However, you add something you don’t often see in “advice” columns which is that sometimes there are extenuating circumstances or you just want to make a change for personal reasons. Following your approach will ensure than even if it seems whimsical to others, you can make your dreams come true in a disciplined and responsible manner.
Kim Dougherty
Birch Advisory Services International