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Investing Money Into Your Home- Will I See A Return On My Investment?

Mar 16, 2008
With the housing market in a record slump, one of the biggest questions I get from people is how much is too much to spend on a renovation and will I see that money back when I go to sell my house?

While it is a common belief that any money you put into your house will add value to it, this is not always the case. There are really two different categories that you put home renovations into- General Maintenance/Upkeep and Visual Improvements.

1) General Maintenance- Projects like replacing your hot water heater, patching a leaky roof, repairing damaged siding, or sealing up cracks in the foundation are not going to show you a return on your investment but they are going to be required to keep up the overall condition of your home.

Regular maintenance can help extend the life of your home but at some point there are things that are going to be replaced. By avoiding repairs or maintenance on items like this will just make the condition worse and will result in even more money being needed for repairs

2) Visual Improvements- While that sounds very vague, this would be anything that is not structural in nature or not necessarily required. This is where investing money into your house is going to pay off. Projects like renovating a bathroom or a kitchen, finishing off a basement, adding a deck, or even landscaping the yard will not only spruce up your home but they will also add value

That being said, not all of these projects will yield the same return. For the same amount of money, finishing off a basement might yield a 20% return on your investment while renovating your kitchen or bathroom could yield a 75-90% return on your investment.

Even though the rule thumb says that you will see a return on your investment by renovating a kitchen or bathroom, or by finishing off a basement, that is not always the case. If you are planning on selling your home in the immediate future or down the road, putting too many personal touches on a space can actually have a negative affect.

The same thing can be said for spending too much on a given space. If the average kitchen in your neighbor is estimated at $25,000 in value and you spend $60,000 on your kitchen, odds are you will have a hard time convincing buyers that the house is worth that much more than your neighbors.

Adding additional bedrooms or an extra bathroom is always a good investment provided it is not taking space away from other usable space. Be careful when taking usable space to create two spaces. Sometimes taking a bedroom and cutting it in half will actually take value away from the house if it wasn't big enough to start with. It is always a good idea to have a real estate agent give you some advice as to the impact a renovation will have on the value of your home.

By investing wisely, you can see some significant returns on your investment, whether it is a more comfortable living space for years to come or a more attractive home for potential homebuyers.
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