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Look Before You Leap: Home Improvement Cost Versus Return on Investment

Look Before You Leap: Home Improvement Cost Versus Return on Investment

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May 7, 2009

By Roger Diez

Now is an excellent time to tackle that home improvement project you have been considering. Due to the slow economy, cost of materials and labor are down from just two years ago. But if you have several projects under consideration, you might want to concentrate on those that will give you the best return on investment (ROI).

Remodeling Costs and Average Returns

Remodeling Magazine's most recent survey of remodeling costs indicates that projects that enhance the exterior of your home are generally less costly and yield a greater return on investment than interior improvements. Projects like an outside deck addition, window replacement, and vinyl siding cost on average between $10,000 and $15,000, and return 76 percent to 81 percent of their cost on resale. Higher cost projects typically yield a smaller return. A master suite addition, second story addition, or major kitchen remodel have an average cost of over $100,000 and generally return between between 61 percent and 70 percent of their cost.

Regional Return on Investment Differences: Your Return May Vary

The numbers quoted above are national averages, but there are significant differences in costs and returns depending on where you live. Here is what you can expect in various areas of the country.

New England: High Remodeling Costs, Lower Returns

The highest cost of remodeling in the country is in New England, leading to a somewhat lower return on investment in this area of the country. Remodeling costs can range from 2 percent to 10 percent above the national average, but return on investment can be 2 percent to 10 percent lower than the national average. Homeowners in this region may achieve the best payback on remodeling costs by focusing on high yield exterior home improvement projects.

Southeast: Lowest Home Improvement Costs, Good Value

Remodeling costs in the southeast are the lowest in the country, and the return on investment is significantly higher for some projects. Your deck addition may cost almost $1,700 dollars less than the national average, and your return may be four percent higher. You might also see similar cost savings on other projects, with ROI ranging from one percent to fove percent better than the national average.

Midwest: Remodeling Costs Near National Average, ROI Somewhat Below Average

While not as high as costs in New England, midwesterners' remodeling costs are very near the national average. Return on investment lags the national average by nearly 8 percent across the board. For example, vinyl window replacement for an entire house is only $63 less than average, while the return on investment is $968, or almost nine percent, below the national average. As the housing market improves, midwestern homeowners may enjoy a higher payback on remodeling costs.

West: Higher Remodeling Costs, Best Value

If you reside on the west coast, remodeling costs are slightly higher than the national average. The good news is that the return on investment is significantly better for most projects, approaching 100 percent for the addition of a wood deck, siding or window replacement, or a minor kitchen remodel. For example, replacing your siding with a fiber-cement siding costs an average of $13,769 on the west coast vs. a national average of $13,177. But the return is $13,172 compared to $11,424, a significant value improvement.

Bottom Line: Do What is Best For You

Of course, remodeling projects don't always come down to a matter of dollars and cents. Teenagers in the house may dictate the need for that extra bathroom. A growing family may require a second story or a larger kitchen. And some improvements, such as replacement windows, can yield big dividends in areas such as energy cost savings. If you have some handyman skills, you can reduce remodeling costs to the cost of materials by doing most of the work yourself. If you aren't handy, shop carefully for a local contractor. Get at least three bids, get references, and check them out thoroughly with your contractor's board and the Better Business Bureau. At the end of the day, only you can decide whether your remodeling project is worth the costs involved.

Further Resources:
Affordable Remodeling Made Simple
Remodeling Magazine 2008 Cost V. Value Report 2008

Take Advantage of Tax Credits and Cash In On Your Green Home Improvements

About the Author: Roger Diez is a freelance writer and a veteran of the home improvement wars.

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