18 Dec Home improvements and resale value

Q. I want to make some home improvements, but I want to make sure I’m adding to my home’s value. How can I decide which improvements are the smartest to make? I plan to sell in five to seven years.
— Ready for construction

A. Few home improvements will get you all of your money back when you sell your home, but you’re right. Some improvements will have more of a return on investment than others.

Generally, investing money into home improvements is a reasonable strategy but should be considered as part of an overall wealth building plan, said Jim McCarthy, a certified financial planner with Directional Wealth Management in Rockaway.

“You should weigh the cost/benefit of investing capital into your home versus investing capital in other types of investments,” McCarthy said. “Whichever generates the highest potential increase in your overall net worth over your stated time horizon is the smartest way to go.”

If the answer is investing in home improvements, McCarthy offered these statistics.

A recent study by the National Association of the Remodeling Industry (NARI) surveyed consumers and the National Association of REALTORS® (NAR) on this issue.

Interestingly, most of the homeowners surveyed reported they undertook home improvements to increase the livability of the home rather than increase its value for resale, with 74 percent reporting a greater desire to be in their home after remodeling. McCarthy said.

Based on the surveys, NARI ranked interior projects in terms of their appeal to buyers. Kitchen upgrades, complete kitchen renovations, bathroom renovations and new wood flooring topped the list.

Then, NAR provided estimates of the likely dollar values each project would add to the house at resale, and NARI came up with a “Recovered Project Cost” percentage.

For interior projects, the highest percentage cost recovered was from hardwood flooring refinish (100%) , insulation upgrade (95%), new wood flooring (91%) and basement conversion to living area (69%). The estimate percentage of cost recovered for kitchen upgrades (67%), complete kitchen renovations (67%) and bathroom renovations (58%) were lower.

For exterior projects, new roofing, new vinyl windows, new garage door, and new vinyl siding ranked highest with buyers, and they were also ranked the highest for increases in resale value according to NAR. The highest percentage cost recovered was from new roofing (105%), new garage door (87%), new vinyl siding (83%) and new vinyl windows (80%).

We hope that helps. In the meantime, though, make sure you’re not spending more than you can afford, especially if you’re financing the costs. With the Fed’s recent interest rate hike, rates for home equity loans and lines of credit may be on the rise.

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This story was first posted in December 2015.