Photo by Carol Mitchell

Update: In these difficult economic times, people are thinking much more deeply about the risk versus reward of the housing market. The market itself is not as strong as it was so selling up and moving to a new home simply may not be a viable option for people whose homes have stagnated in value. That’s why if you need to make changes to your home, it’s a good idea to stay where you are and carry out some remodeling work. That way, you can ride out the recession and add significant value to your home several years down the line. Even if selling your home is not on the horizon, it’s always a good idea to make improvements that will add resale value if and when you decide to move on.

By Dan Fritschen

If your home is medium to small for your neighborhood and is in need of improvements and if your additions are appropriate in style and quality for the house, then remodeling could be a good investment. If you manage the costs well, it is reasonable to assume remodeling will add more value to your home than the cost of the remodel.

Take the example of Justin and Ashley, who invested $80,000 and will make a $40,000 profit on that investment when they sell their home. Justin and Ashley had purchased their 1957 house three years earlier at a 10 percent discount because of the condition of the house. They liked the neighborhood and bought the least expensive house they could find. They began updating and remodeling as their finances improved. They made many cosmetic improvements, such as new maple kitchen cabinets to replace the plywood ones and new marble bathroom tile to replace the original pink tile. These changes, as well as the addition of a fourth bedroom, have made the house average in size for the neighborhood, a good place to be from an investment perspective.

To make these improvements, they invested $80,000 over three years and probably could sell the house today for $120,000 more than if they had done none of the improvements. In addition, if they sold today, with all the improvements, the house would likely sell faster and with fewer contingencies than if they had left it in its previous state.

This “ease of sale” is an important value because selling your home is a stressful experience. Most of us value a fast, low-risk sale. Remodeling can also be less expensive than moving. As an example, imagine you own a $200,000 home. The home was built in the 1970s and needs updating in every room, but generally you like the floor plan, the neighborhood, and the yard. Your options are to remodel and update your current home or to move to a new home that is selling for $300,000. To sell your home will cost between $20,000 and $40,000, as is shown in chapter 3. What kind of remodeling could you do with the same amount of money? As examples in chapter 4 will show, you could paint the interior, install new interior doors with new hardware and add baseboards and crown molding, which when combined will make a big improvement in the home’s appearance. After all these upgrades, you will still have money left over to do a minor update of the bathrooms and kitchen, which could include new knobs on the cabinets, painting the cabinets, and new faucets. All of this could be done for much less than the cost to move, saving you money, allowing you to keep the house that you love, and improving your quality of life.