The Home Remodeling Decision

Anyone who has lived through months of dusty floors, washed dinner dishes in the bathtub, and stayed with friends when the water in the house is off for two days knows major remodeling is an extraordinary pain. But letting go of what you have and trading up to a new home is not an easy decision.

Ask yourself what factors are most important to you:

• Do you love your neighborhood?
• Are you near services and schools?
• What is your commute time?
• Is there room to remodel - considering lot size, etc.?
• Have you built up enough equity in your current home to justify spending on a remodel?

You've heard the old adage "location, location, location." If you already live in a desirable neighborhood, but the house vexes you because it has one bathroom, or a kitchen that was last updated in 1960, remodeling may be the answer.

Timing and the Market

Does it make sense to invest in a major remodel in your market? A remodel that will pay off in Los Angeles, may not pay off in Missoula. If you spend $85,000 on a kitchen remodel, you may recoup more than what you spent in L.A., but not where the housing prices are only double the cost of the remodel.

Remodel Decision Points

Do your research:

• Get an appraisal - find out what your home is currently worth
• Check comparables (recently sold homes) in your area to see what the baseline for selling is
• Estimate your remodeling project cost
• Determine how you will pay for the remodel 
  

Appraise House and Neighborhood

Paying for a current appraisal is money well spent in the remodeling process. If your home is already valued high relative to the market, you will not recoup the cost of an expensive remodel. Research comparables using My Estimator to value your home among the others in the neighborhood - remodeled or not - to get a better picture of your possible financial gain. It is easy to spend over $10,000 on a bathroom upgrade without architectural changes, but will it pay off?

Remodeling Returns

Check out Zillow's home improvement valuation list for an idea of typical remodeling project costs and possible payoffs. Some projects will return 78 percent of your costs while others may return as much as 103 percent, but some financial experts caution that these numbers are only valid if you turn around and sell your home within a year of completing the remodel. The longer you wait to sell, the more the remodel value decreases.

Paying for It

Do you have the equity in your home to open a home equity line of credit, or apply for a home equity loan to pay for the remodel? If you have less than 20 percent equity in your current home, wait to remodel.

If you do have the equity, what will the remodel entail? If it is a large project - such as big structural changes and losing the use of your kitchen or your one bathroom, you may want to consider moving out during the hammering and drilling.

Trading Up and Out

Depending on your area of the country, trading up to a new house with all the features you are looking for is often cheaper than remodeling. The trading up trade-offs are that you may need to move a distance from your current home and incur the time and costs of buying and selling again.

Related Links

• How to Value a House
• Home Equity Loans and Lines
• Refinancing Your Home