Should I spend $60,000 to renovate my house?

(Money Magazine) -- Question: My husband wants to do some renovations to our house that will cost at least $60,000, possibly a lot more. I'm 62 and he's almost 66. I'd like to know how much of a return on our investment we would get, if any, if we sell in about five years. -- Anne, Yonkers, New York.

Answer: Maybe it's just me, but the fact that you used the phrase "my husband wants to" rather than "my husband and I want to" left me with the distinct impression that you and your hubby disagree about whether you should be spending sixty grand or more on renovating your home.

• Email
• Print
• Comment

Walter Updegrave is a senior editor with Money Magazine and is the author of "How to Retire Rich in a Totally Changed World: Why You're Not in Kansas Anymore" (Three Rivers Press 2005).

Ultimate Guide to Retirement

• Getting started
• 401(k)s & company plans
• Investing
• Annuities
• IRAs
• Self-employment plans
• Pensions and benefit plans
• Social Security
• Insurance
• Estate planning
• Living in retirement
• Getting help

Whether that's true or not, however, I think there are at least two topics you and your husband ought to sit down and talk about before he straps on his tool belt or hires someone else to do the work.

The first is how much of the money you put into the project you can expect to recoup at resale. Notice I didn't say how much of a "return" your renovation dollars will earn. Why?

Well, if you check out Remodeling Magazine's most recent Cost vs. Value report, you'll see that in the vast majority of cases homeowners shouldn't count on a return in the sense that they'll get back more at resale than they spent on the project. Indeed, although the report shows that estimates vary by the type of project as well as from region to region and city to city, in most cases the increase in the expected resale value recoups less than 80% of the cost, sometimes much less.

The second question you and your husband should be discussing is how you plan to pay for this work. If you'll be dipping into retirement savings, you'll want to ask yourselves whether you want to be putting a rather large sum into a rather illiquid asset -- your house -- considering that you're probably retired or close to retiring.

Big chunks of money are much harder to come by once you're no longer working, so retirees need to be especially careful about shelling out large sums. After all, an extra sixty thou could come in handy in the event you run into unexpected expenses or your retirement portfolio takes a hit. Or it could just serve as an extra reserve that might help you sleep better at night, now and in the future.

If, on the other hand, you're thinking of financing the work, then you need to consider how long it will take to repay -- and whether you would be comfortable taking on debt at this stage of life.

All that said, I don't mean to imply that, once you've talked about these issues, you and your husband will necessarily conclude you shouldn't do the renovation. That's a subjective decision that I could see going either way.

On the issue of proximity to retirement, for all I know you and your husband may have enough in 401(k)s, IRAs and other retirement accounts so that shelling out sixty grand or taking out a loan isn't going to have a big effect on your retirement lifestyle either way.

And the fact that a remodeling survey that's been around for years indicates you're unlikely to earn a financial return doesn't automatically make the project a no-go either. For one thing, this report's results are based not on actual sales but on estimates provided by real estate agents of how much value a particular project will add in a particular locale. Perhaps you have good reason to believe that the results will be different in your situation.

Even if that's not the case, though, there are other benefits to a renovation, like the fact that you may enjoy your home a lot more. During the time my wife and I have owned our house, we've taken on several sizeable remodeling projects, including our kitchen, two bathrooms and the master bedroom. I doubt I'll earn much of a financial return, if any, for the cost of this work. But these projects have definitely enhanced the quality of life at home for my family and me, so I'm glad we did them.

Of course, I've lived in the house with these improvements for 10 or more years already and plan to stay here even longer. You, on the other hand, talk about selling in five years. You'll have to decide whether that time frame would be sufficient for you to derive enough enjoyment from the renovation to make it worthwhile even if you don't get a financial return on your investment.

Finally, there's one other issue you might want to consider. You don't say what shape your house is in. But if it's rundown to the point where its condition is clearly inferior to that of other houses in your neighborhood, then you might want to spruce it up so it doesn't come off as a fixer-upper.

Why? Well, given the still shaky state of the economy, it's difficult to say what shape the housing market will be in five years from now when you're ready to sell. But even in a healthy market, a house that buyers perceive as a handyman special, or just one requiring considerable work, can take more time to sell --and fetch a disappointingly low price when it does. And if the market is still in recovery mode when you're looking to unload your home, a down-at-the-heels house might require even bigger concessions on the sales price.

So if the reason your husband wants to renovate is because your house has slipped below the standard of others in your area, then you might want to do enough to bring it up to speed -- although if that's the case, you likely won't want to spend more than the minimum needed to put it in acceptable condition. And, unless the house is really falling apart around you, you may also want to hold off doing the work until it's closer to the time you plan to sell.

So before you and your husband do anything with the house, have a talk about why you're thinking of renovating, what you hope to get from the project, how you would feel if you reap no financial return and whether you're okay parting with the cash or taking on debt at this stage of your life.

And while you're at it, why not contact a few real estate agents in your area as well. After all, it certainly couldn't hurt to get the opinion of some people familiar with the housing market in your area about how much the work you envision may or may not enhance the resale value of your home.