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Remodeling Investment Cost and Return Value

Generally, Exterior Projects do Better During an Economic Recession

© 2011 by ; all rights reserved; content may not be copied, rewritten, or republished without author’s written permission. Author’s Google profile

A home with exterior decorative shutters, photo courtesy Kelly Smith

Most real estate agents will tell you that kitchen and bath makeovers will bring the largest return on investment (ROI), and in general that’s true. But it’s not written in stone and vary on a yearly basis. Several factors can conspire to alter that logic.

When you define your home improvement budget, it’s important to prioritize your goals. You also have to consider your home owner association’s rules.

In a recent news story, a woman painted the exterior of her home. The HOA took her to court because the color didn’t match one of the “approved” 7 colors. So she re-painted, but she used all 7 colors. They took her back to court, but this time the judge ruled in her favor and made the HOA pay for another re-painting, her choice. Touche’.

Some Factors that Affect Cost and Home Equity when Remodeling

  • Sustainable, green building techniques and products are becoming increasingly more popular.

  • The season of the year. Remodeling contractor costs will fluctuate; for example, projects done during the winter may be cheaper because the trades are looking for work.

  • Emerging energy-efficient technology is becoming more popular. Two examples are insulated concrete forms (ICFs) and structural insulated panels (SIPSs).

    Not only is the resulting structure incredibly efficient, the technology is kinder to the environment because less scrap is produced than is the case with conventional stick framing.

  • Availability and current prices of construction materials. For example, several years ago the cost of cement increased because China was on a construction binge, driving up the price.

  • The economic environment in general.

  • The current energy price such as electricity, coal, natural gas, gasoline, and heating oil has something of an indirect effect.

What are the Current Statistics on Remodeling Cost vs Recoup Value

Remodeling magazine is one source that tracks statistics and trends. They compile a US national average using regional data. But what if your home is outside the USA? Simply that the numbers are fuzzier, but since we live in a largely global economy, you may be able to extrapolate general economic trends.

During the years 2008 to 2009, the US national averages report generated showed that the ROI on virtually all remodeling was down from 2007.

But we’re more interested in current trends. Let’s look at the results for the 2010 to 2011 time span.

The magazine reports that, “Until this year, the ratio has been driven down by eroding home prices and rising construction costs. That pattern ended this year when overall construction costs declined 10.4% to a level that is midway between where costs were in 2006 and 2007.

However, rather than leading to a rebound in the cost-to-value ratio, lower costs were overmatched by a 15.8% drop in estimated resale values, the biggest decline in the last eight years.

This reflects the continuing instability in the real estate market which, despite record-low mortgage rates, has remained sluggish due to continued tight lending practices and uncertainty over foreclosures and distressed properties.”

The Devil is in the Details

Overall, exterior projects did better than interior as far as ROI is concerned. The main reason is that we are still in a depressed economy and exterior projects are simply cheaper. These projects, form the best performing down are:

  1. Entry door replacement.
  2. Garage door replacement.
  3. Upgrading to fiber-cement siding. (Think Hardi.) Interestingly, if you only rank jobs that cost $5000 and up, this one is number one on the list every year!
  4. Adding a wood deck.
  5. A minor kitchen remodel.
  6. Attic bedroom makeover.
  7. Remodeling the basement.

Do you have any tips that would benefit our readers regarding this topic? Please share in the comment section below!

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© 2011 all rights reserved; content may not be copied, rewritten, or republished without author’s written permission.