I've seen a lot in my twenty years as a real estate appraiser. My experience has run the gambit from really hard working home owners that strive to maintain and improve their homes, to houses that haven't been touched in decades!  The latter is always a wonderment to me.

      Your house is a bank account. Sure, making your monthly mortgage payment allows the principal portion to be paid against the loan amount, and is therefore like a savings account. More than that however, is appreciation - the interest you get in return for the ownership. Maintained homes typically, in most markets, rise in value every year by the rate of inflation or perhaps more. Let's take this to a higher level, though. 

      Making improvements to your home, in an economically responsible way, can make that bank account soar even higher faster. You will notice I said.."in an economically responsible way..". I say that for very good reason. 

      Often I see well meaning homeowners make improvements to their homes which will not return their investment. Examples that come to mind are as follows:

*One couple recently spent $20,000 remodeling their basement. It was a standard basement, not a walk out. The home was a fairly standard, well maintained ranch home with typical appointments, surrounded by more of the same. The home was a lovely family home, to be sure. The basement project was complete with an upgraded bathroom, tongue and groove paneling throughout the space, a gas fireplace, solid wood panel doors, a bedroom and a den. It was very nice! I wanted to cry for this nice young couple. That $20,000 investment - and that didn't include their hard work as they did the remodeling themselves - was going to net them about $8,500. So in effect, they lost $11,500 of their hard earned money and about six months of their free time. Meanwhile, the kitchen area of the home had the original 20 year old cabinets and counter top in it. If only they would have finished the basement in a less grand style and put the additional money into modernizing the kitchen they would have been much farther ahead!  Because they are talented in the skill set required for remodeling, as evidenced by the basement work they did, they could most likely install all necessary components to complete the kitchen as well. Had the kitchen been done, commensurate with the overall quality of the home, it would have raised the value of the home at least equal to the money spent. 

*Another couple I recently visited remodeled the interior of their home. They, too, were able to do the work themselves and it turned out very nicely. The home was a standard '50s ranch home on a crawl space foundation. The thing is, they left the exterior the same. There were definite repair issues with exterior components of the home, such a siding, window and roof issues. There was no immediate plan to do anything with the exterior. As nice as the interior is, it only has a partial impact on value. The packaging is important! Once again, areas of the home were super adequate to the home type in the market place, but the exterior of the home fell below market standard. Therefore, all the work they did and the money they invested in improvements were not going to be realized in the market value of the home. 

*Countless times I have disappointed home owners by having to break the news to them that the new $40,000 barn complete with insulation, drywall, bathroom, etc.. or the the new $20,000 in ground pool, did not add the amount spent for the amenity to the market value of the home.
 
      Cost does not equal value. Value is led by the market. Cost is what comes out of your pocket. They are not related to one another. That is a very hard concept for most to take in. However, that is the number one reason I have seen for home owners loosing money when it comes to home remodeling.

      Value is influenced by many things. As you have heard many times, the number one rule in real estate is location, location, location. What this means is that your location drives your value. The most basic example of this is a comparison between, let's say, a neighborhood of 50's tract ranches as compared to a neighborhood of large custom homes - both nearby each other in the same town. Let's say you put a large custom home in the 50's tract sub. Will it be worth the same as it would had it been built in the neighborhood of like houses? In a word - NO! It's value is capped by the influences of the neighboring houses. The lot is cheaper for a reason. Over and over again, though, I see this very phenomenon and wish I would have had the opportunity to talk to them BEFORE they started building. On the other hand, what do you think would happen if this newer custom home neighborhood was built on land once owned by a standard 50's ranch which still stood there abutting this neighborhood? Would you say the value of this home would be the same as the homes exactly like it in the 50's tract sub? In a word, NO! This house is also being influenced by it's surroundings. This time, however, the surroundings have a positive influence and would raise the value of the home beyond that of the other ranches we talked about. 

      My best advice to new couples starting out is to buy the worst house in the nicest neighborhood you can afford! There is a very good reason for that. Start with the example given above. Say that ranch we talked about above that was surrounded by the large custom homes was maintained but not updated. This would be a perfect choice for someone who doesn't mind rolling up their sleeves a bit. As value is market driven and the market here would allow for a higher price based on the surrounding homes, there is a lot of potential with a home fitting this scenario, providing the non-cosmetic areas of the home are ok. Obviously, if there are real issues with the home, such as foundation instability, water issues in the basement, termites, out and out neglect, environmental concerns, etc... this would probably not be a candidate for a profitable purchase. Per cosmetics or say a minor design flaw, those are areas you can take full advantage of. What you would want to accomplish by purchasing a home like this is to make it more competitive with the neighboring homes. It will never be a newer custom home like it's neighbors and it would be folly to attempt a match. But there are plenty of area purchasers, typically, who may want to live in that neighborhood in a home with similar appeal who may not be able to afford one of the larger new ones. Your home just needs to compete. So update it. Make the features match that of neighboring homes (not size or room count). Upgrade the kitchen commensurate to that of the neighboring homes. Update the siding, windows, add dimensional shingles, interior paint, floor coverings, light fixtures. Now you are on a level playing field, but with smaller square footage. Your home would still sell for less than the bigger ones, but the price would be a lot closer. 

      So, given the choice of a home like the one described above or one which has already been updated but is located in the tract sub, I would ALWAYS choose the one that needed work. Then again, I'm fairly handy. I can do much of the work myself. If you are not fairly handy but feel you wouldn't mind learning new skills, many times there are free classes through the home improvement stores, low cost classes through adult education courses, and for simple things like painting, etc.. there are the multitude of home improvement shows on television. If, on the other hand, you prefer to leave all work to contractors, then you very well may be better off purchasing the home in the other neighborhood that has already been remodeled or at very least, get bids on needed work before signing a purchase agreement to insure your purchase is economically responsible.

      Use an equity coach to help you build a stronger future for yourself. There are many instances where an equity coach can mean the difference in growing your wealth. An equity coach can help you with the home you are currently in by telling you how you can improve your home for the most profit. Everyone has heard..oh, do the kitchen and bath and you'll be better off financially. BUT what does that mean? Does it mean granite, stainless steel appliances? Many times, no. An equity coach will help you decide what improvements are APPROPRIATE for your home and pocketbook. An equity coach can also help you if you are thinking of buying a house. First of all, a consultation may be appropriate to decide where to look for a home, if appreciation is of concern to you. Also, once the home is chosen, an equity coach can help you, either before you sign a purchase agreement (recommended), or after, to know what the potential is for the home economically. An equity coach can help even if you are going to stay in your home forever. Why? How? Your home is a bank account. You can use your home to borrow against for major events (sending kids to college, kids weddings, health issues, etc..) as well as use your home as a retirement account by selecting to use a reverse mortgage to bolster your retirement income. In those cases as well, the higher the equity in your home (which is determined by market value minus mortgage balance), the more funds will be available to you. 

      So see, your home is not just where you live, it truly is one of the most important investments you will ever make!

 

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