Read This Before Remodeling Your Home

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You're tired of your digs. You don't want to put up with the hassle of moving, or perhaps you're not at the point where you can afford your dream home. Maybe you're perfectly happy with your place, but you're sure that there's that one upgrade that could make it better. 

You're in the Home Improvement Zone. 

It's not necessarily a bad place to be. Making your place more livable has its benefits. However, many of these projects aren't cheap. Even something as simple as replacing ceiling fans or rain gutters can run into higher tabs than you were bargaining for if it exposes faulty wiring or a tired roof. You need to approach home improvement goals with the same determined and well-researched mind-set you use in arriving at major life decisions.

It's your home, and you don't want to have to literally live with your mistake.

There's no such thing as investing in home improvement
Some homeowners justify their renovation projects by calling them investments. They're putting in a swimming pool or replacing stained carpets with hardwood planks because they will make that back -- and then some -- when they ultimately sell their homes. 

Don't think that way. It's a myth. 

Nearly every home improvement project will cost you more than what you will probably get for it when you eventually sell your place. Remodeling Magazine priced out projects for its 2014 Cost vs. Value survey, arriving at what the expenditure will do to increase the value of the property. Let's look at the five midrange projects that have the highest return on the original outlay.

Project Cost Value Return
Entry Door Replacement $1,162 $1,122 96.6%
Wood Deck Addition $9,539 $8,334 87.4%
Attic Bedroom  $49,438 $41,656 84.3%
Garage Door Replacement $1,534 $1,283 83.7%
Minor Kitchen Remodel $18,856 $15,585 82.7%

Source: Remodeling Magazine. 

That should come as a wake-up call to anyone expecting to profit from an update. Even the project with the highest return -- replacing an old door with a steel one -- will only see you making back less than $0.97 on every dollar. 

The math gets hairier when eyeing more upscale projects. The best return in the high-end category is replacing existing siding with new fiber-cement siding, and that merely results in getting 87% of that back at the time of a sale.

Some pros do see select renovations paying off, but there aren't many. Just one of HGTV's Front Door "Top 15 Home Updates Pay Off" actually does pay off, but the 102% return on a minor bathroom remodel is ultimately up to the chances that your tastes match what your potential buyer wants.

In short, your home may be an investment with the compounding magic of appreciation working in your favor when you eventually sell your place, but that doesn't make your remodeling initiatives investments.

Avoid the low-return renovations
You are unlikely to make back what you spend on home improvement, but that doesn't mean that every project is the same. Some tasks will do shockingly little to improve the ultimate value of your home. 

A home office remodel may seem like a great idea at the time, but a national average of $28,000 spent on the remodeling only returns $13,697 in value. That's more than half of the money you spent disappearing at resale. Let's look at some of the other tasks that aren't likely to pay off.

Project Cost Value Return
Sunroom Addition $73,546 $38,011 51.7%
Master Suite Addition $224,989 $125,920 56%
Garage Addition  $82,311 $48,065 58.4%
Bathroom Addition $38,186 $22,940 60.1%
Upscale Bathroom Addition $72,538 $43,936 60.6%

Source: Remodeling Magazine. 

Don't be afraid to improve your home
Home improvements may not be investments, but that doesn't mean you should dismiss the notion altogether. A new kitchen with marble countertops could inspire you to save money on dining by eating at home more. Adding that backup power generator can have you resting easy when the rest of your neighborhood is in the dark. 

Home improvement is big business. Figures compiled by the Joint Center for Housing Studies at Harvard University found that home remodeling peaked in 2006 with $145 billion spent by homeowners. That was just as the real estate bubble was getting ready to pop, and it's not a surprise that home improvement suffered through four years of declines after that. However, homeowners are starting to spend again, and the figures suggest that we will top $145 billion to set a new high in 2014. The healthy housing market and rising costs of renovations are factors, but more importantly it's simply a matter of folks feeling comfortable again in spending to spruce up their homesteads.

If that's what you want to do -- and you don't plan on moving for at least a few years -- even some of the projects with the lowest returns may make sense. They may even pay off, but more as a result of the compounding of real estate appreciating than the actual value of the projects that you undertook.

Enhance responsibly.

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