Investing in home equity is never a bad idea, but it is possible to make bad renovation choices when it comes to picking the right project. According to a new survey from Remodeling magazine, the simple fact is that not all home renovation costs will be recouped at selling time, which means they may not be the best choice for those looking to put their homes on the market. When it comes to a bad return on investment, some projects that should be avoided include adding a home office, adding a sunroom, installing a backup generator and building an upscale garage. For more on this continue reading the following article from TheStreet.
A new bathroom or roof can make your home a lot more pleasant, but don’t expect to recover its cost when you sell.
That’s because a recent analysis by Remodeling magazine and the National Association of Realtors found that none of 35 upgrades studied will boost your home’s value enough to cover the job’s nationwide average price.
"You can easily put something in that a buyer is just going to want to rip out," says Judy Moore, a suburban Boston real estate agent and National Association of Realtors board member.
The Remodeling 2012-13 Cost vs. Value Report compares estimated project prices in 81 U.S. markets with how 3,900 Realtors predict a given upgrade will affect a property’s value.
While researchers found that some projects offer 100% return on investment or better in certain markets, none do so on a nationwide basis.
We looked recently at the five upgrades that Remodeling found offer the best ROIs. Below is a look at the five that researchers believe offer the worst.
Creating a home office?
Projected return on investment: 43.6%?
Moore says that while some house-hunters appreciate an elaborate home office, "it’s an individual preference. Many people will just use the kitchen table, the basement or an extra bedroom as home offices."
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Remodeling estimates that you’ll recoup less than half of the $27,300 you’ll spend to convert an existing 12-foot-by-12-foot room into a home office with custom cabinets, a 20-foot desktop, a computer workstation, carpeting and communications lines.
Adding a sunroom?
Projected return on investment: 46.5%?
This is another project Remodeling believes you’ll recover less than half the price of at sale time.
The magazine calculates you’ll pay $72,200 to add a 200-square-foot sunroom with 10 skylights — but raise your home’s value by only $33,500.
"A sunroom is a nice thing to have, but it’s not something that’s crucial to most buyers," Moore says.
Building an upscale master-bedroom suite?
Projected return on investment: 52.1%?
Expect to recoup just over half of the $220,100 it’ll cost to add a 32-foot-by-20-foot master-bedroom suite with a gas fireplace, custom bookcases, a spa-style bathroom, a walk-in closet and a bar/refrigerator.
Moore says few house-hunters want master bedrooms that fancy.
"I’ve sold $2 million homes that don’t have a bar in the bedroom," she says. "Most buyers are too frugal for that."
Installing a backup power generator?
Projected return on investment: 52.7%?
Moore says built-in generators have impressed Boston-area buyers ever since severe storms hit in 2011 — but won’t boost property values enough to justify the $11,400 that Remodeling estimates a whole-house system costs.
The reason: Home-improvement stores sell small portable generators for $150 or less.
"A lot of people figure they’d rather go the ‘Home Depot’ (HD) route and have something that functions but isn’t so expensive," Moore says.
Adding an upscale garage
Projected return on investment:
This $80,500 renovation involves updating an existing two-car garage with fresh paint and drywall, molding, a modular storage system and an epoxy-sealed cement floor.
Moore says the project only makes sense if you want a fancy garage for personal reasons and add it four or five years before putting your home on the market.
"It’s a good investment if you can use the garage yourself for a while — but not if you’re just putting it in to sell your property," she says. "You’ll never make your money back."
The Remodeling 2012-13 Cost vs. Value Report is copyrighted by magazine publisher Hanley Wood, but data from the study can be downloaded for free at costvsvalue.com.
This article was republished with permission from TheStreet.
