Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

The 9 Best Ways to Add Value to Your Home

The goal: You want to get top dollar for your home or investment property when you sell. You're confident you can renovate a few things, recoup the cost and even enjoy some serious profit when hungry home buyers come and see your gloriously updated property.

It's the dream, and it can be done according to many real estate agents and property experts I've talked to.

But only if you keep this in mind: You must look at your home through the lens of the home buyer.

For example, it's easy to spend $50,000 on a new space-age kitchen, but unless you live in a neighborhood of million-dollar mansions, your house will not be valued that much higher than other homes in the area and you'll never recoup the cost. Again, think about it from the homebuyer's perspective: If they were attracted to your house because it was in an affordably-priced area, for instance, they may pay a little more for a nice kitchen, but will they pay as much as you paid for the renovation? 

Second, if the goal is boosting the value of your home for eventual re-sale and profit, you must make decisions with your head as an investor, not with your heart. That doesn't mean using cheap materials or cutting corners, because buyers will spot cut-rate work and you wouldn't want to live with chintzy construction. But it does mean thinking twice about ultra-upscale touches that are tempting but not completely necessary.

So with all that in mind, what are some wise renovation investments to make toward increasing the value of your home? Start with these nine time-tested projects that homeowners tend to profit from down the road:

1. Adding a Bathroom

Housing surveys show that bathrooms exert the biggest effect on a home's value. The greater the disparity between the number of bedrooms and bathrooms in your home, the more that adding a new bathroom will leverage the costs of your improvement.

If your budget is tight, consider adding a half bath, which still does the trick. Also, old and rusty fixtures never look good to potential buyers. If your bathroom looks tired, consider a full-scale renovation (or at least a good sprucing-up).

2. Doing a Kitchen Remodel

Kitchens are high on the list, too. However, remember not to go too crazy on the ultra-upscale finishes or imported Italian tilework. Unless you're Wolfgang Puck and cooking is your undying passion, it's unwise from an investment standpoint to turn your kitchen into a work of art worthy of a TV show set.

3. Finishing a Basement

Basements are some of the most overlooked rooms out there. A lot are plain, empty, unused spaces that are rarely visited. So why not take advantage of all that extra space?

One of the latest renovation trends has been transforming dusty basements into inviting entertainment areas. If you live in a flood plain, real estate agents and builders recommend that you also install an automatic sump pump and, instead of carpeting, lay down mold-proof ceramic tiles.

4. New Siding on the Home's Exterior

Instead of cheap-looking siding that makes your house look like a tin can, there are many types of siding on the market that remarkably resemble real wood. Aluminum siding also conveys insulation properties and obviates the need for constant painting.

5. Adding a Deck to a Home

Prospective buyers love to imagine themselves on a deck, enjoying cocktails and barbecuing in the blue-and-grey of twilight. However, before you add a deck, scrutinize your property tax provisions.

Certain expensive neighborhoods might sock you with additional property taxes because of your deck, thereby negating the investment. This caveat also applies to second stories and garages.

6. Replacing Aging or Damaged Windows

This is a good move, not just for aesthetic reasons. Old windows can leak heat and let in cold air. And as an added financial perk, you can receive a tax credit equal to 10% of the product cost (up to $200 in tax credits) for installing ENERGY STAR eligible windows and skylights according to Energystar.gov.

7. Renovating an Attic into a Bedroom

Like basements, attics are another great example of forgotten space just going to waste. If you've got a generous amount of room in your attic, consider making it into an additional bedroom.

This is a cost-effective way to add a new room, which appeals to families with children. It also makes your home more energy efficient, because bedrooms must be insulated.

8. Adding a Second Story

This is a big project. Check all of the building codes and make sure you have a reputable contractor. Also check your zoning laws and any local historic designations that might get in your way. And don’t forget, as soon as you seek that building permit, the local authorities might see fit to jack up your property taxes.

And finally, keep an addition within the perspective of your neighborhood. Enlarging your home typically pays off, but not if the surrounding dwellings are more modest. Otherwise, it makes your house look out of place, as if it's on steroids.

9. Adding a Garage

This especially makes sense if no garage exists. Many home buyers have at least one car, and even if they don't, agarage can serve as a great place to store that unsightly lawn mower taking up room in the yard.

As with adding a second bathroom, this pays off if most homes in your neighborhood already have garages.

The Takeaway

While no home improvement project can guarantee you'll sell your home above market rates, these ideas could give you much greater potential to move your property faster and for top dollar. Before you choose to go forward with any of these nine projects, it's absolutely crucial to do your homework and find a contractor who comes recommended and bonded. Horror stories abound of fly-by-night contractors who do shoddy work, bust the budget and take forever to finish. Get recommendations from friends whom you trust and, once you've chosen a contractor, get everything in writing.

It's a good idea to pay cash for the projects if you can afford it, but you may also consider taking out a tax-friendly home equity loan with a low annual percentage rate (APR) to finance your home-selling renovations.

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