I have never seen the show “Bang for your Buck” on HGTV until today, and all it really made me do was question whether home remodeling is really an investment? Currently, I live in a brand new Town House (or it was brand new when I bought it in 2007) which has a limited price and The Wife and I don’t look at it as a permanent home, so to remodel has never even crossed our minds.
HGTV’s Site describes the show as,
Granite countertops or a custom, mosaic backsplash? Hardwood floors or stone tiles? We are bombarded with so many beautiful home renovation ideas, not only is it difficult to decide what we want, but it’s hard to determine which choices provide the greatest return on investment. Bang For Your Buck has the concrete answers on remodeling value and how to get the most out of any renovation budget. In each episode, three homeowners from the same city renovate the same room of the house with the same budget. After the renovation, experts determine the value of each home, dramatically revealing whose remodeling choices were good investment decisions.
I watched only one episode and in it were 3 couples who spent $75,000 on a kitchen remodel. Well only 1 of the 3 couples increased their home value beyond the $75,000 they put into it. So if I had:
- $500,000 home and $75,000 cash = $575,000 in assets
and then I do a Kitchen remodel
- $560,000 house and $0 cash = $560,000 in assets
The hosts actually said they all did a great job, for investment purposes. I was confused, I didn’t get it, so I did what any person who sits with a laptop next to him when watching TV, I went to Google.
Will Home Remodel Costs Make it Worth the Investment?
I found a so-so article on About.com which discusses Home Improvement Return on Investment, but I am not sure I entirely agree with it. According to About.com,
[Y]ou should not expect to fully recover the amount of the remodeling investment right away. Typically you can expect between 80% and 90% back on your home improvement investment dollar, sometimes more, sometimes less, within the first year or two. With the proper remodel, you can increase and even make money on the improvement the longer you stay in the home. As with many investments it’s the quiet power of compounding that creates good returns. By being in the home a longer period of time, you give the real estate market time to increase and you leverage the remodeling investment as property values grow.
But wouldn’t compounding occur if that $75,000 was held in investments, also? I guess there is the argument that your house is increasing in value with the home improvement, while decreasing the debt on it, thereby leveraging the gains, however, that only occurs if you didn’t use borrowed money to do the improvements.
This reminds me of a situation I had at work a couple months ago. A girl walked in bragging about her new handbag, a louis vuitton. I had bought one for The Wife a couple Christmas’ ago, so I knew how much they are. So I said, “Wow that is a splurge on yourself” to which she responded, “It is an investment.” Woah, a handbag is not an investment. According to Dictionary.com an investment can be defined as,
An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.
So the handbag is not an investment but according to that definition our Home improvement project might be, but it may not be a very good one!
Have you ever done a remodeling project? Has it increased the value of your home?