|
Wednesday, February 12, 2003 Investing in home improvement is a smart financial move Add value to your home along with your lifestyle
When it comes to investing money, one of the smartest investment opportunities is often overlooked home improvement. The purchase of a home is only half of the equation. Housing continues to be an investment opportunity long after the sale is closed. Financial experts contend that stability and tax benefits are two major advantages to investing where you sleep. According to the National Association of Home Builders (NAHB), for most people a home is a solid investment in the future, providing not only a place to live, but a solid rate of return with low risk. Since the major housing organizations began tracking sales prices in the 1960s, there has never been a year in which the average existing U.S. home lost value, with home prices increasing at an average rate of about 5 percent annually. In fact, The U.S. Census Bureau reports the median price for a home in the U.S. today is $151,000 up 30 percent from five years ago. And existing home sales are headed for a third straight record year, thanks in part to rock-solid home prices and historically low mortgage interest rates. According to Cheryl Waits, director of segment marketing for Pella Corporation, if properly maintained, a home is a lasting investment that will provide a sound return for many years. "More and more homeowners are taking the opportunity to make the most of their time and money though smart investments. Home improvement research shows that nearly one million homes a year undergo a major remodeling project involving a replacement or addition. The beauty of investing in home improvement is that homeowners not only add value to their homes, but to their lives as well. Quality windows and doors are two areas that can have a substantial impact in this area," she said. Replacing drafty, leaky windows and doors with high-performing alternatives can greatly affect energy efficiency, noise and comfort levels within a home. By reducing drafts, air loss and condensation, homeowners will experience a home that is warmer in the winter and cooler in the summer with lower utility bills. Less air traveling around your windows and doors also means less outside noise squeaking through the cracks resulting in fewer interruptions. "Unlike unpredictable returns from today's turbulent stock market, the life improvement benefits from home improvements, such as a window or door replacement, are tangible," Waits noted. "Day in and day out, you can see the aesthetics of your home are more appealing or your utility bill is lower, feel your house is warmer or cooler or hear that it is quieter. In fact, you may even notice a little extra sunlight in your home, which may help family members feel better." The American Homeowners Foundation (AHF) agrees that investing in home improvement has become an increasingly popular method of enhancing the lifestyle of homeowners. In the mid 1980s remodeling surpassed new home construction in terms of annual expenditures, and it still leads today. When preparing to embark on a home improvement project, here are a few simple questions to ask yourself to help ensure that the home improvement project is a good investment. Am I improving to stay or move? According to the AHF, it costs approximately 10 percent of a home's current value to sell and move. If you enjoy your neighborhood and school system, it may be better to reinvest that 10 percent into home improvements that will enhance your lifestyle versus moving. If moving is a must, then simplicity will be key. A fresh coat of paint can have the biggest impact on the resale value of your property, because it is a less-expensive way to make the property visually appealing. Will my desired home improvement increase the value of my home? Certain kinds of improvements will increase the value of your home, others may not. It is important to determine whether this is the case before you invest the money. Valuable improvements can include additions to living space or improvements to bedrooms, bathrooms and kitchens, such as new windows, fixtures, etc. Amenities, such as swimming pools and tennis courts, do not add as much to the value of a home. How do I determine how much money to invest in home improvements? Whether you're planning to stay or move, you should try to avoid over-improving. If you invest "too much" on improvements, you might make your home more valuable than the value of the neighborhood. Remember the old adage, "Buy the worst home in the best neighborhood rather than the best home in the worst neighborhood." For example, if you live in a neighborhood of $100,000 to $150,000 homes, investing $200,000 into the house may mean you will not recover all or part of the cost of the improvements if you intend to sell it. However, don't let the fear of over improving discourage you from moving forward with a project. Depending on the scope of your home improvement project, there are a variety of products that are beautiful and cost-effective to fit any budget. Just remember, you home's value should be no more than 20 percent above the average. What if my home improvement project costs more than I am initially able to invest? Recent changes in tax laws have opened up home equity for a variety of uses, including home improvement. Today, home improvement can often be financed at low rates and over a long term by simply taking advantage of the current low mortgage interest rates. If mortgage rates are low, cash out mortgage refinancing may be the best way to refinance the remainder of your home improvement project. Will capital improvements increase the tax basis of my home? Making improvements to your home may increase the tax basis. When selling a home, the gain is determined by subtracting your basis from the net proceeds. Be sure to save records of all capital improvements made to your home. Capital improvements do not include maintenance or repairs. To learn more about investing in home improvement, contact your local financial advisor; the American Homeowners Foundation at www.americanhomeowners.org, (800) 489-7776 or the National Association of Homebuilders at www.nahb.org, (800) 368-5242. To find out more about windows and doors, contact the Window and Door Manufacturers Association at www.wdma.com, or Pella Corporation at www.pella.com, (888) 84-PELLA.
|
||