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Personal Finance > Your Home
Home improvement that pays
April 26, 2000: 12:20 p.m. ET

Save by planning and financing well, targeting the best areas for renovation
By Jay MacDonald
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NEW YORK (CNNfn) - If your remote control is stuck on Home and Garden Television, if you recognize Bob Vila's voice sight unseen and you're on a first-name basis with the clerks at Home Depot, chances are you've caught the home-improvement bug.
    graphicYou're not alone. Today, Americans are sprucing up everything from Arizona tract homes and New England saltboxes to Florida condos, and about half of you are doing it yourselves.
    Others have contractors come in and clamber through the rubble, watching them work as an old room becomes a new room.
    Little wonder there's such a rush. Interest rates on home equity loans are favorable, the cost, availability and selection of materials have never been better, and housing markets remain generally strong.
    But when it comes time to sell, will you recoup the cost of that new master suite, state-of-the-art kitchen or dormered attic loft? The time to find out is before you pull out the power saw or hire a kitchen company, not after.
    
Should you stay or should you go?

    Both remodeling and relocating can be expensive. The difference, of course, is that the money spent on remodeling is reinvested into your house, and if you finance correctly, the interest on your payments can be tax deductible.
    The American Homeowners Foundation estimates the total cost of moving to be at least 10 percent of your home's current value. In other words, if you can make things right with your home for less than 10 percent of what you could sell it for, staying put and fixing it up makes good sense.
    If you have little choice but to move (to a new job, for example), rule of thumb suggests you put the money just as carefully into your new house, not your old.
    
Equity options

    Fortunately, several financing options for home renovations are readily available today.
    If you have the equity to match your total project cost, a traditional home equity loan will run you about 10 percent. If you are unsure of how these loans work, Bankrate.com's home equity basics can help. If you're a little short on equity but your credit is solid, a Federal Housing Administration insured Title 1 loan can cover you to $25,000, and a Fannie Mae-sponsored HomeStyle Remodeler loan covers up to $50,000.
    If you are thinking of refinancing anyway, you may be able to raise your current mortgage to cover the remodel amount; both HomeStyle and the FHA-sponsored 203(k) loan offer this option. But remember, your project cost will increase due to interest over the term of the mortgage.
    If you are purchasing a house that needs remodeling, HomeStyle can cover both to a combined maximum of $252,700. If your improvements include energy-efficient upgrades (insulation, thermal windows, new HVAC system), you may qualify for energy-saving loans through local utilities or related businesses.
    
Remodels that pay off

    What can you expect to recoup for renovations to this old house?
    According to a detailed study by Remodeling Online, kitchens rule, returning 94 percent of your investment, followed closely by additional bathrooms, family rooms and second-story additions.
    Here's what's hot in remodels, room by room:
    graphicKitchens commonly suffer the most wear and tear. And because kitchens tend to follow style and color trends, they often seem dated sooner than other rooms in the home. The most popular minor improvements include adding functionality with dual sinks and cooking stations, and cosmetic improvements such as under-cabinet lighting and ceramic tile backsplashes on the countertops. To add space, consider a walk-in pantry or breakfast alcove.
    "The younger buyers, especially the Baby Boomers, want a modern kitchen with the cooktop stove and nice cabinets, not to mention wine coolers and Subzero refrigerators," says Mary Johnson, residential specialist with Premier Properties of Naples, Fla. "I think it does make a difference. Even if it's just a cooktop stove, they walk in and say, 'Oh, it's a remodeled kitchen!'"
    Bathrooms have changed the most during the past century. Your grandparents may remember when they were outside. Your parents probably made do with just one. Today, homes that have more than one sell faster and fetch a higher price. Popular remodels include skylights, windows or, failing that, vaulted ceilings. Also, decorative wall hooks, rollout shelves or new fans. Finding space to add a bathroom can prove tricky; for best results, consider a contractor.
    "You can't lose by adding a bath," says Johnson. "If you're remodeling, his and her dressing rooms, even his and her bathrooms, are big. Then the husband can shave and the wife can fix her hair without the shower steam. If money's tight, just replacing the water fixtures helps."
    Family rooms came into vogue after many American homes were built; hence, you may face sacrificing other spaces (rooms, closets) to create one. To enlarge the space, try lowering the floor, opening the ceiling or expanding out with box-bay windows.
    Bedrooms are always listed first in real estate descriptions for good reason: we spend nearly half our lives there. If you can put one in your attic or, by adding a second floor, consider stacking your bathrooms to cut costs. Properly placed, dormers and roof windows help offset the add-on appearance.
    Master suites have become a hot real estate feature. If you are converting a bedroom into a master suite, try to locate the closet as a buffer between bedroom and bath, and enhance the suite effect with recessed lighting, sconces and built-in adjustable reading lights.
    Home offices are a growing trend, especially in predominately professional neighborhoods. But beware: If you convert a bedroom and knock out the closet, it no longer will be considered a bedroom in a real estate listing, which could adversely affect your asking price.
    And while you're at it, consider making the office Internet-friendly.
    "Everybody wants multiple phone lines and high-speed Internet access," Johnson says.
    
Getting it right

    Try as they might, the hardware superstores thus far have failed to teach what architects and designers have to offer: taste.
    Your return on your remodel likely will depend as much on how well it fits the period and scale of your house as how much it adds to its functionality.
    "Anything that is sensitive to the character of the house should have the same sense of proportion and materials," says Kay Miller Boehr, architect with Shaw Hofstra & Associates in Kansas City, Mo. "If the house originally had molding, it should be there. If it didn't, it won't help to go out and do it at Home Depot."
    Boehr says the things that most grate on her are faux replacement windows, kitchens where "miles and miles" of cabinetry have run amok, and rooms that "scream '70s or '80s."
    Her advice: Refinish any and all hardwood floors, don't scrimp on the details that define the house's style, and hire a designer if you don't know a Cape Cod from an English Tudor.
    "I believe in doing a house for yourself, not just for resale. But then I like those things that are consistent with the character of the house," she says. "Older houses where the owners have done a good job remodeling them sell quickly, even in neighborhoods where there's still a lot of rehab to be done."
    Johnson agrees. "People can see past the decorating a lot of times, but if they see that a house hasn't been taken care of, they wonder what else is wrong that they can't see."
    
Don't go crazy

    A final word of caution: To properly recoup all that sweat equity, keep one eye to your neighborhood. No matter how spectacular your results, don't plan on pushing your home's value beyond 25 percent of its current selling price. Even in the best market, you probably won't get it.
    Best bet: If the market is lukewarm or you reside in a neighborhood with widely varied property values, set your sights just under the most expensive home on the block. That way, the showcase homes will tend to reinforce your potential asking price.
    Yes, you've noticed pools, gazebos, mazes, musical fountains and exotic animal enclosures didn't make the list. If you absolutely have to have one, go ahead. But don't expect the next buyer to fall in love with them and pay for your fancies. Back to top
    -- by bankrate.com for CNNfn

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  RELATED SITES

bankrate.com

Federal Housing Administration loan information

Fannie Mae

American Homeowners Foundation

Remodeling Online

Premier Properties of Southwest Florida Inc


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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.