Home Improvements That Pay You Back

(Editor's note: To read Eric Gillin's remodeling dos and don'ts, click here.)

Homeowners who refinanced at winter's rock-bottom rates will likely remodel now that spring has sprung. But not all home improvements improve home values.

Indeed, the location of your house and what you plan to change determine how much bang you get out of the bucks you invest.

For example, your neighborhood is almost as important as what you remodel. "The real paybacks come from getting your home in line with community standards," says Kermit Baker, director of the Remodeling Futures Program at Harvard University's Joint Center for Housing Studies. "If every home in the neighborhood has three bathrooms and you have two, adding one will give you a big payback."

So you're literally keeping up with the Joneses.

According to the National Association of Home Builders (NAHB), the average home in 1950 had two bedrooms and one bathroom, but today's average house has more than three bedrooms and two and a half baths. By 2010, the NAHB estimates, three full baths will be standard.

Food and Water

More than any other project, kitchen and bathroom remodels add the most value to a home, but they're also the most costly. Kitchens typically come with expensive appliances, and bathrooms often require extensive plumbing work.

For example, remodeling a 200-square-foot kitchen, including new cabinets and countertops, costs $14,773 on average and recoups 87% of its cost when a house is sold, according to Remodeling Magazine's annual "Cost vs. Value" study, which lists changes that add the most to home values. A bathroom remodel, including a new tub, toilet, sink and countertop, runs $9,786 and recoups 80% of its cost.

The Most Bang for the Buck
Remodeling Job	Job Cost	Cost Recouped
Bathroom Remodel	$9,786	80%
Bathroom Addition	14,216	81
Minor Kitchen Remodel	14,773	87
Major Kitchen Remodel	38,769	80
Second-Story Addition	67,744	83
Source: Remodeling Online, 2001 Cost vs. Value Report

If you're on a limited budget, replace only cabinet doors and handles, suggests Jim Neidner, president of Neidner Construction & Remodeling in Houston. In a medium-sized kitchen, Neidner says, cabinet replacement will run $4,500, far less than the $30,000 it could cost to replace an entire kitchen. Plus, you can still use the kitchen during construction. "When you do a face-lift, the whole look is different without having to tear the whole place up," he says.

More Rooms

Adding bedrooms is another common remodeling job, the third-most popular in 2000, according to the NAHB. But in this category, not all changes offer a solid return on investment.

The best return comes from adding a bedroom to a small home, especially one with two bedrooms, says Len Robinson, co-author of the Consumer's Guide to Remodeling & Construction. "It'll be worth double what you paid for it."

The Least Bang for Your Buck
Remodeling Job	Job Cost	Cost Recouped
Home Office	$10,526	54%
Reroofing	10,111	60
Sunroom	27,081	60
Window Replacement	9,026	68
Basement Refinish	39,658	69
Source: Remodeling Online, 2001 Cost vs. Value Report

If you have the money, adding a second story reaps significant rewards, says Jim Cory, senior editor of Remodeling Magazine. The average two-story addition was a pricey $67,744, but it returned 83% of its cost when it came time to sell, according to the "Cost vs. Value" study.

But converting a garage, basement or attic into a bedroom could be wasted money. Indeed, an attic bedroom only recouped 73% of its average cost of $31,367, while a basement remodel recouped only 69% of its average cost of $39,658, according to the "Cost vs. Value" study.

And garage remodels, while a convenient way to turn an underused space into a large bedroom, add little to long-term home value. "If you're trying to sell your house, turning a garage into a bedroom is the pits," Cory says. "It's hard to sell that type of house."

Work and Play

While a home office offers the lowest return on investment than any other remodeling job -- just 54% -- it has a different kind of value. For one, the cost of adding a home office is tax-deductible for those who operate businesses from their homes. And the home office will pay for itself over time with money earned from a home business. "Salespeople, attorneys and accountants all tend to work at home now," Robinson says.

But be aware that when it comes time to sell, many potential buyers would prefer another bedroom. "Your functional needs are not going to be the same as someone else's," Cory says.

Small Jobs for Small Budgets
Remodeling Job	Job Cost	Cost Recouped
Reroofing	$10,111	60%
Window Replacement	9,026	68
Siding Replacement	6,286	73
Exterior Paint	8,336	74
Deck Addition	5,865	75
Bathroom Remodel	9,786	80
Source: Remodeling Online, 2001 Cost vs. Value Report

Outdoor Activity

For the most part, outdoor remodeling projects maintain home value but add little to it. After all, a home with dented siding looks like a fixer-upper, while many cast a suspicious eye on a house with peeling paint.

A do-it-yourself exterior paint job can save money, especially for those in a one-story house. But if homeowners don't pay attention to details, such as properly preparing the house before painting, they'll be painting again in a few years, Neidner of Neidner Construction says.

Siding is easier to maintain and costs $2,000 less than a paint job, according to the "Cost vs. Value" study. Cement-fiber siding, a durable product that looks like wood with none of the termites and rot associated with it, will give you the most bang for the buck. "Cement products have great payback value," Neidner says.

But when it comes to the roof over your head, fixing it up is a necessity. "If you sell a house with a leaky roof, you'll be sued," Remodeling Magazine's Cory says.

To read Eric Gillin's remodeling dos and don'ts, click here.