Posts Tagged ‘remodeling’

After years of declining return on investment, remodeling has turned a corner this year. The best return on the money is from economical replacement jobs and lower-cost room upgrades.

Homeowners are getting a better return on their remodeling dollar now than in the past two to three years. The value recouped when a home sells improved this year for each of 35 remodeling projects studied by Remodeling Magazine’s 2013 Cost vs. Value report.

Rising home prices get the credit. Owners around the country are recouping 61% of remodeling costs when they sell. The survey finds that smaller projects and practical replacement jobs lead the list.

The last study, in fall 2011, showed returns falling across the board. Return on remodeling investment had been dropping since 2005. But the payback of 58 cents on the dollar in 2011-2012 was the worst since the survey was begun in 2003.

Encouraging signs
The new data are a sign that the housing recovery may finally be on solid footing, Remodeling Magazine editor Sal Alfano says. (Bing: What are the experts saying about real estate in 2013?)

“We thought it would happen last year,” he says. “We’re still kind of waiting to see if this is the real thing, but the signs everywhere seem to point in the right direction.”

Return on average remodeling investment by year

Year Cost Recouped at sale Ratio
2013 $42,038 $25,464 60.6%
2011-2012 $44,734 $25,829 57.7%
2010-2011 $45,593 $27,367 60%
2009-2010 $50,908 $32,497 63.8%
2008 $49,866 $33,568 67.3%
2007 $47,739 $33,458 70.1%
2006 $43,209 $32,873 76.1%
2005 $36,849 $31,932 86.7%
2004 $36,274 $29,204 80.5%
2003 $38,286 $31,591 82.5%

Not all remodeling projects pay back equally well. The survey numbers represent average payback for all 35 projects in nine regions around the country. This year’s survey used feedback from about 3,900 real-estate agents who responded regarding how each project would affect a home’s resale value.

The survey also used project-by-project data on material and labor costs in each of the nine regions. A local economy or real-estate market can have a big effect on the projects’ performance in the regions, as you’ll see.

Remodeling has benefits even when the payback ratio is not high, and this survey does not take those into account. Money spent on improvements may reward home sellers with a shorter time on the market, Alfano said in an interview. Remodeling jobs often pay back with deep enjoyment even when they don’t contribute to a family’s bottom line.

The best return
Generally, lower-priced projects are performing best. Here are the top five:

1. Steel replacement entry door. The project with the highest return is a home entry door replacement using a 20-gauge steel door, at an average cost of $1,137 and a return of 86%, on average, around the country. Fiberglass entry door replacements ($2,753, 66%) aren’t as cost-effective.

2. Fiber-cement exterior siding. The second-best job for the money involves replacing old exterior siding with newer fiber-cement siding ($13,083, 79%). Foam-backed vinyl replacement siding costs a little bit more ($13,817) and pays back less (72%).

3. Wood deck. Adding a wood deck ($9,327, 77%) gives great value. A new deck made with composite materials ($15,084, 68%) pays back less because the materials cost a good deal more.

4. Garage-door replacement. Swapping an old garage door with a relatively inexpensive new one ($1,496, 76%) also ranks high. Using a higher-end garage door ($2,720, 75%) for the replacement also performs well, ranking sixth of the 35 projects.

5. Modest kitchen remodel. A minor remodel of a 200-square-foot kitchen ($18,527, 75%) pays back nicely. It involves new, midpriced laminate countertops, new faces for existing cabinets and a new cooktop, wall oven, sink and vinyl flooring.

Replacements make up a great deal of the home-improvement work being done today, Alfano says. Most replacement projects included in the study cost less than $20,000. Four cost less than $5,000. This frugality is a reflection of the continuing pressure from the recession, he says.

Replacements with strong payback include new wood windows ($10,708, 73%) or vinyl windows ($9,770, 71% to $13,055, 71%). A new roof — that costly but necessary project that homeowners dread — gives a relatively low return if you use 25-year, 235-pound fiberglass asphalt shingles ($18,488, 63%). The return on a roof replacement of standing-seam metal ($33,880, 57%) is even worse. (Bing: What is a standing-seam roof?)

Lower-cost exterior improvements perform well for homeowners, “partly because they’re economical but also because they really improve curb appeal,” Alfano says.

The survey doesn’t ask agents why certain projects are valued more or less by their buyers. But Alfano surmises, “If you replace the front door or replace siding or the garage door, prospective buyers get a good first impression. They’re more likely to pay the asking price, or the house is going to sit on the market for a shorter time — that’s what we’re thinking.”

The remodeling industry took a brutal hit in the recession. Tradespeople slashed the price of their labor to put food on their tables. Now, remodelers report that they’re getting more leads for work and are engaged for slightly larger projects.

Until recently, Alfano says, homeowners thinking of remodeling tended to dally, requesting design and planning meetings but holding back when it came to signing on the dotted line. Today, they’re committing more quickly, and more are starting remodeling projects.

Replacement jobs kept the industry going in the recession, Alfano says. Bank loans for larger jobs were — and still are — hard to obtain. But remodelers who specialize in replacements may work closely with finance companies that are willing to lend, though typically at higher interest rates than banks. “They provide you the paper for the project, and most of these projects are under $20,000, so it’s not a huge chunk of change, like a kitchen or bathroom remodel is,” Alfano adds. “A lot of them offer same-as-cash financing so you have a year to pay.”

Cash-out refinancing is picking up, too. “Not like wildfire,” Alfano says, but since low rates have sparked a refi boom, some owners can draw on their equity. Research shows that during the boom, homeowners used nearly 35% of the equity they withdrew to improve their homes, he says.

Remodeling creeps back
In addition to replacements, modest remodeling jobs are enjoying something of a comeback. Besides the downscale kitchen and bath remodels, other projects with good payback include converting an attic to a bedroom ($47,919, 73%) and remodeling a basement ($61,303, 70%).

These are the least expensive ways to add living space to your home, since you stay within the footprint of the house and usually can extend plumbing from nearby. There’s no need to break ground or add a foundation, which add considerably to a project’s cost.

These projects may be growing in popularity because homeowners want to add space to invite elderly parents or adult children to join their household, Alfano says.


Compliments of: Martha Small | Austin Portfolio Real Estate | 512.587.0308

Original Article by: Marilyn Lewis of MSN Real Estate

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