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January, 2005

THE BENEFITS AND DEFICITS OF HOME RENOVATIONS
by LARRY

It is a truism of personal finance that one's home is one's first and best investment. This is certainly not always the case, but is valid enough that the maxim remains with us, and is likely to continue to, so long as there are tax benefits in typical real estate ownership and the bottom does not fall out of this market.

But houses tend to wear out and must be properly maintained or even improved to retain good value and to add to it at least consistent with the upward march of inflation. Critical issues for a real estate owner, then, are when, how, and how much to repair and renovate the investment we often also call home.

Ordinary maintenance or repairs, things like regularly painting the exterior of the property, putting in new doorknobs or windows when they wear out or become broken, replacing deteriorating wood, getting or installing a new roof (as we needed to do late last month), replacing worn out electrical wiring, assuring the heating/air conditioning system is kept in good working order, and so on, ought to be done routinely, just as needed, to keep up the appearance and functionality of one's place. If something is let go, such as repairing or replacing bad siding, in fairly short order one may be looking at a much larger repair or replacement bill.



But with renovations it is usually a much more discretionary matter. One does not, after all, usually have to have a remodeled kitchen, a screened-in deck, a sauna, an extra room, a garage converted into a den, walls taken out, or other improvements.

Some renovations really do add value to a home, but others, such as a swimming pool, frequently decrease it. So research well before the changes you wish to make. Be sure they are really worthwhile. One's favorite real estate broker often can give useful tips here for what is and is not an asset to the house's selling price.



Bear in mind too the area homeowners' rules and agreements. That new room on the side of your house may be a problem if it results in the clearance between your home and your neighbor's becoming too narrow. Or that eight-foot privacy fence topped with razor wire you propose running out to the street could cause you difficulties later.

It is a good idea to assure that the look of your remodeled mansion will not stand out as just too weird among the other residences on your block. A two-story New England colonial look might not work very well in an otherwise all Spanish style one-story adobe development. Even if your abode is clearly the nicest around, if it draws attention to itself as out of place, this may well hurt the resale value.

Unique improvements, for instance a small roller derby rink in your backyard or putting a big hot tub in your garage, might later reduce the number of potential buyers. Installing non-standard sizes of kitchen counters or appliances is another no-no.



Much has been said about the advantages of do-it-yourself home remodeling. The theme has made some television programs quite popular and is doing wonderful things for Lowes's shareholders. But be sure you really are a handy man or woman before you try this at home. Improvements that are clearly amateurish are likely to scare off potential new owners. And do-it-yourselfers too often also get into trouble with building codes or structural requirements. The money you saved by doing it yourself might seem minor if you fail a pre-closing inspection, lose the contract, have to tear the work out, and must hire someone else to do it right.

But those who don't do such work themselves have the joy of dealing with contractors. Some of these can be pretty good, but there are many who are not. Finding a remodeling contractor you can trust, who will do the work reliably and at a reasonable price, can sometimes be more challenging than just tackling the work on your own. Yet if you've discovered such exemplary entrepeneurs, treasure them like gems. They can seem almost worth their weight in saffron.



The bottom line is that any renovations are a plus if they not only make your home a nicer place to live while you are there but also add more resale value than the costs of the changes.

(My thanks to Ann for loaning me a copy of the recent issue [Vol. 5, No. 1, Jan./Feb., 2005] of "Loose Change," a financial planning publication from which some ideas for this piece were taken [p. 7].)



DISCLAIMER

Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)



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