With home values and home equity taking a beating the last five years, many homeowners are left wondering if there is anything they can do to increase the value of their home and their home equity. While there are some ways to increase your home’s value, many cost more than what you’ll gain, especially if you contract out the work. However, if you’re willing and able to do the work yourself, your “sweat equity” can boost the value of your home and increase your home’s equity. Despite the current economy, now is a good time to do home improvements since interest rates are at historic lows and contractors are scrambling for work. Provided you plan to stay in your home for a number of years and you do the right home improvements, you could enhance your home’s value when home prices recover.
Beware of over-improving
If you plan to make some home improvements, you’ll want to choose projects that will provide a good return on your investment. Ten years ago most real estate agents would tell a homeowner that a new kitchen or a new bath would be an excellent way to increase their home’s value. But today the return on investment isn’t there. According to Remodeling Magazine, the best home improvement project today is replacing an entry door with a steel one, providing homeowners with a 2 percent return on investment. Homeowners should focus on practical projects that would be of value to most potential homebuyers. Replacing a garage door is another example of a practical home improvement because it improves a home’s appearance from the street. Other practical home improvement projects include basement remodeling, converting attic space into an extra bedroom, siding replacement and new windows.
The home improvement projects to avoid are those that tend to be for luxury items or serve special interests. High-end bathrooms provide worse dollar-for-dollar returns than basic bathrooms. Adding a hot tub, adding a sunroom or master bedroom suite or home office are other examples of home improvement projects with poor returns on investment.
Many of these projects fall into the over-building category, something homeowners should avoid especially in this market. Installing granite countertops in a home’s kitchen when all the other kitchens in the neighborhood have Formica won’t bring a good return on your investment. By the same token, you can bring the value of your home to those around it when you install new siding or windows if that’s what other homes in the neighborhood have.
Partial Projects and Sweat Equity
While a home improvement projects return on investment will vary from region to region, homeowners living in areas with strong home values will have a better return on investment than those living in areas where home values are suppressed. This is many homeowners are doing the work themselves on partial projects like putting in new flooring, replacing or refinishing their kitchen cabinets rather than completely remodeling their kitchens. More homeowners are recognizing that high-value improvements are only providing 70-80 percent return on investment which isn’t going to boost their home’s value or home equity.
Whether you’re looking to refinance your home or sell it, there are a variety of things homeowners can do to enhance the appearance of their homes to make a better impression on appraisers or potential homebuyers. Minor improvements to landscaping like trimming or replacing bushes, improving the lawn, adding perennial flowers and greenery can help. Other easy improvements include sealing the driveway, washing siding and gutters, interior or exterior painting. Upgrading items throughout your home such as plumbing fixtures, lights, doorknobs, curtain rods and ceiling fans can also help.
Increasing your home’s value and equity in your home isn’t easy. But choosing the right home improvement projects and doing the work yourself are the best ways to boost your home’s value while also building equity.