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AN	J000000020090106e5160001a
HD	Read This Before You Remodel
BY	By David Crook
WC	1586 Words
PD	06 January 2009
SN	The Wall Street Journal
SC	J
NGC	The Wall Street Journal - Print and Online
GC	CTGWSJ
PG	D1
LA	English
CY	(Copyright (c) 2009, Dow Jones & Company, Inc.)
LP	What Americans spend on their homes after buying them is mind-boggling. Various sources suggest that the nation's annual home-improvement bill -- do-it-yourself and professional remodeling, landscaping and major repair projects -- could be $400 billion or more. And until quite recently, much of it has been financed by borrowed money -- loans secured by houses that are declining in value month by month. ---
TD	What Americans spend on their homes after buying them is mind-boggling. Various sources suggest that the nation's annual home-improvement bill -- do-it-yourself and professional remodeling, landscaping and major repair projects -- could be $400 billion or more. And until quite recently, much of it has been financed by borrowed money -- loans secured by houses that are declining in value month by month. Not surprisingly, entire industries have arisen to get a piece of the action. Magazines and television programs entice homeowners to spend tens of thousands of dollars for new kitchens with custom-built cabinets, granite countertops and designer appliances. Architects and builders woo clients with bedrooms that have swollen into his-and-hers master suites with separate dressing rooms, sitting rooms and exercise areas. Simple bathrooms have become spas featuring expensive electronic toilets, multihead showers and Asian-inspired "soaking" tubs. Landscapers construct elegant "outdoor rooms" that feature dining and lounging areas, even kitchens, that are the equals of comparable rooms inside the house. Unfortunately, a misguided "home as investment" mindset has encouraged owners to spend money on these kinds of expensive upgrades to boost their home's resale price and to stay even with the rest of the houses in the neighborhood. Ask any homeowner why he or she is remodeling, and fairly quickly you'll hear: "It will increase the value of the house." Reality check: Renovating might increase the price of your house. But it's most often a fool's bet because few home improvements break even, much less make a profit. Like new cars, most home improvements are lousy investments, losing one-fifth or more of their cost the day the contractor finally loads up and leaves. Yet there's still a strong argument for remodeling your house -- within limits. With real-estate values falling at double-digit rates, the homeowners' dream of rolling over the appreciation and equity they've accumulated in their current homes into a bigger, nicer place is getting harder to achieve. More and more newly house-poor homeowners are coming to terms with the inconvenient fact that they will need to stay in their homes longer, perhaps a lot longer, than they may have planned or wanted. The one-bedroom condo that was bought for just the newlyweds will now have to accommodate the new baby, too. And the cramped two-bedroom, one-bath bungalow will have to see the two teenagers all the way through high school. You can't buck the price trends in this troubled market. Even if you've been in your current home since well before the Big Bubble, you can't expect to make a killing by selling your house. What you can do is stay where you are and adapt your existing home to meet your current and future needs and desires. If you resist the urge to move, maintain your home well and are a smart renovator, you will retire your mortgage debt more quickly, spend less overall on housing, improve the quality and value of your home, and have more money to make other, more-lucrative long-term investments in stocks, bonds and even investment properties. Of course, there are varying degrees of remodeling, and some has to be done whatever the cost and the potential for return. It's not a discretionary expense to fix a broken window, replace a worn-out furnace or sometimes even to add a new bathroom. The buyer of a fixer-upper with a kitchen that hasn't seen a paint brush or a scouring pad since 1967 doesn't have a choice but to renovate. And a growing family has to do something when the kids are sleeping in the dining room because the living room is already taken. Indeed, the most important thing that any individual homeowner can do to protect the value of his biggest asset is to see that the house is always kept in good repair. There's no price bonus for the best-kept house on a shabby block, but there's a big discount on the worst house in a good neighborhood. Your job as a homeowner is to protect the money you have spent on your biggest asset, while making sure that the ceiling doesn't collapse on your sleeping kids. The best way to do that is with a continuous and systematic whole-house maintenance program. Expect to pay up to 3% a year of your house's value on regular upkeep, repairs and special projects -- everything from the weekly yard service to annual furnace checkups. You'll pay a lot more if you are renovating. That's because most home-remodeling projects balloon far beyond what financial common sense dictates. Homeowners are often warned about "over-improving" their property -- making improvements that push a house too far out of line with what other nearby properties have -- but they are rarely warned about the extraordinary costs of remodeling. Nor are they warned about improving beyond what they can reasonably expect to recoup when they sell the place. Remodeling magazine, a periodical for builders, publishes a widely quoted annual survey of the value of home improvements. The survey is not perfect, but it's the best widely available assessment of what's popular in home renovations and the only serious effort to gauge the financial impact that various projects have on the resale value of homes. The depressing survey results lay bare the financial fantasies that most homeowners have when it comes to renovations and upgrades. Here are some samples: An upscale bathroom remodel cost about $51,000 in 2007 but homeowners could expect to recover only about $35,000 or 68% of the cost. Spend $220,000 on a new master bedroom suite, recoup just $141,000 (64%). Drop $109,000 for a new kitchen, make back just $81,000 (74%). Imagine the looks of horror you'd earn from your friends if you dropped this bon mot at a dinner party: "Sub Zeros are nice, but if you really want to get the most bang for your buck -- 88% -- go with the fiber-cement siding." The point is that most remodeling has gone far off the scale of reasonableness, especially when the principal justification for most remodeling projects is financial. Why in the world would anyone spend $109,000 to build a magazine-style kitchen when they can expect to recoup only 74% of the cost? Why in the world would anyone borrow the money and end up paying $100,000 more just in interest? What kind of investment is that? That's not to say that people shouldn't ever renovate -- families grow and most people will need more space or they'll want to make their home nicer. Just don't let your desires get so far ahead of your checkbook that there is no sound financial justification for your project. Keep these points in mind: Balance your wants with your needs. Your expectations must fit your budget so that when you start planning a renovation, you don't wind up with every expensive accessory or item in the architect's or builder's inventory. Custom-built kitchen cabinets, granite counters and top-of-the-line, restaurant-style appliances look fantastic, but there are plenty of more modest and affordable alternatives. Don't try keeping up with the neighbors. Unless you are fixing up your house to put it up for immediate sale, there is no valid financial argument for remodeling just to keep your home improvements on par with your neighbors'. And if you are renovating to sell, keep your expenses to a minimum. Unless you can expect that a specific buyer will pay more for a major renovation than it costs, you can't justify the expense financially. Look for no-brainer economies. Yes, you can buy the cheaper hardware, but your big savings will come in cutting your labor costs. So get out your ratty clothes, pick up a hammer, and get to work. Save the difficult, dangerous or expensive stuff for the pros, but you should be able to trim a substantial portion of your renovation costs by doing whatever work you can yourself. Avoid long-term borrowing. Home improvements should be paid for out of pocket or with short-term loans of less than five years. Remember: You are losing money going into the project, and you don't want to increase your losses by paying years and years of interest as well. That new $73,000 upscale bathroom could end up costing you more than $150,000 if you pay for it by refinancing your first mortgage or taking out a new home-equity loan. --- Adapted from "The Wall Street Journal Complete Home Owner's Guidebook: Make the Most of Your Biggest Asset in Any Market" by David Crook. Copyright 2008 by Dow Jones & Co. Published by Three Rivers Press, an imprint of the Crown Publishing Group, a division of Random House Inc., New York. Used by permission.     http://www.djreprints.com/link/DJRFactiva.html?FACTIVA=wjco20090106000048
IN	i5010029: Building Refurbishment | iconst: Construction | icre: Construction/Real Estate
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RE	usa: United States | namz: North American Countries/Regions
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