The Investment U E-Letter
Thursday, July 3, 2003 * * * * * * * The Smartest Home Improvements for Your Investment Dollar
By Dr. Steve Sjuggerud
President, Investment U
**Editor's Note: With the markets closing early today and Steve Sjuggerud on vacation, we thought this would be a good time to revisit one of Steve's classic IU E-Letters. This one originally ran as Letter #177 on October 7, 2002 . And it's just as relevant today-if not more so, considering the refinancing boom and the recent interest-rate cut by the Fed. Steve will be back next week with another new IU E-Letter. Until then, enjoy your holiday…
My wife has a mile-long list of home improvements she wants done… -"Honey, we could REALLY increase the value of this house by updating the kitchen with new countertops and cabinets." -"Steve, I KNOW that wives shopping for homes look at kitchens and master bathrooms. So we NEED to upgrade our bathrooms too." -"Steve, stand right here and imagine this with me… let's take out this wall, and move the stairs, and it'll dramatically open up our living room." She's talking to me in the right language… instead of saying, "Won't the kitchen look nice?" she phrases it in my terms-detailing what each project can do for the value of the house. Because when I hear "Let's move the stairs," all I hear is work and expense. The True Value Of Remodeling Is my wife right? Will we get our money out if we make a fancy master bath or if we update the kitchen? The latest issue of Consumer Reports magazine has the most detailed and unbiased reporting of remodeling I've seen lately. Here's what they found: First and foremost, don't believe the hype. While you hear stories of friends buying a fixer-upper, slapping a new coat of paint and some new carpets down and turning it around for fast profits, it's rarely that easy. You may not be getting the full story there. The surprising truth of the matter, according to Consumer Reports, is "remodeling and upgrading are generally poor investments." "Even kitchens and bathrooms, long considered the most profitable improvements to undertake, [recover] only 50 to 75 percent at sale-and only if you sell a year after the remodeling is complete," says the study. What renovations add the most value? Renovations that ADD SQUARE FOOTAGE to your house are the most likely to add value. There's a caveat here-this only works if you're bringing your square footage up to neighborhood standards. According to Consumer Reports: "You'll get the biggest bang for you buck by keeping up with the Joneses, not by going them one better." "Over-improvement yields diminishing returns. So don't add an in-ground swimming pool or a third story if you're the only one on the block to have one. Refrain from exotic decorating. [And] don't undertake a big-ticket remodeling project if you plan to move within a year-you won't have the time to enjoy it, and new owners will most likely want to do something different. Instead, go for maintenance and repairs, clear clutter, and paint." Not as glamorous an approach to home improvement, perhaps, but a sounder one financially. In sum, keep in mind that, as a general rule, remodeling and upgrading are poor investments. And of the various options, renovations that add square footage to your house are the most likely to add value. So, armed with this knowledge, do you think I'll be able to convince my wife that we don't need to upgrade the kitchen? Me neither.
Today's IU Cribsheet
There were a few things that the Consumer Reports experts all agreed on:
1) When it comes to colors, stick with neutrals because they don't date themselves.
2) Swimming pools are generally bad investments that can even deter some buyers.
3) On all projects, those that add square footage to bring a house up to, but not beyond, community norms pay off the most. Good Investing, Steve | 
