Does it pay to put cash into your home?

Most home improvements don't yield a return on investment. You're better off putting your money toward retirement goals.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Walter Updegrave, Money Magazine senior editor

walter_updegrave__2009b.03.jpg
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).

NEW YORK (Money) -- Question: My home needs updating, but I'm planning to retire in five years and then move. Should I spend money on my house or should I continue putting my savings toward retirement? --Joyce, Pennsauken, New Jersey

Answer: The short answer is that you're probably better off continuing to save as much as you can for retirement over next five years.

That's not to say that you ought to let your house collapse around you in the meantime. Or that you shouldn't do anything to make it more appealing before you sell (or, for that matter, more livable while you're still there).

But I don't see the point of pouring any more money into it than you absolutely must.

Here's why.

You might have heard about the Cost vs. Value Report that Remodeling magazine publishes every year or so. The premise is simple. Researchers estimate the cost of various home improvement projects, such as remodeling a kitchen or bath or replacing windows, in many areas of the country. The magazine then polls real estate agents to see how much value each improvement would likely add to the house at resale.

If you look at the "Cost Recouped" column from this year's report, you'll see that the percentage of the cost you can expect to get back at sale for most home improvement projects is typically less than 80%, and in many cases below 70%.

Granted, as the magazine explains, there can be lots of variation in the percentage of cost you get back at sale depending not just on the project, but the part of the country you live in, the health of the real estate market in your area and the overall level of house prices in your area. And the payback figures don't reflect another aspect of the return you get on your money -- i.e., the pleasure you get from, say, living in a roomier house or whipping up dinners for friends and family in a kitchen fit for a gourmet cook.

But to the extent these figures are accurate, the report shows that purely as an investment home improvements don't measure up. You're not likely to get even your original principal back let alone a return on it. So it seems to me that diverting your savings dollars to a home improvement project on a house you don't expect to be living in more than five years now doesn't make a lot of sense.

That said, there might be instances in which it might pay to spend some money on your home before putting it up for sale. The price your home fetches when you sell it depends not just on the economy and the state of the real estate market in your area, but how your home stacks up against comparable houses in your neighborhood.

If your house has really fallen into disrepair or has a very dated look, it could create a very unfavorable impression with potential buyers. Everywhere they turn, they may see money they've got to plow into it just to make it habitable --- money, of course, that they'll deduct from their bid. In the worst case, the effect may be so unflattering that you'll get nothing but low-ball offers.

To avoid that possibility, you might want to consider going through your house with an eye toward finding ways to make it fresher and more appealing without spending a lot of dough. I'm talking about things like a fresh coat of paint in drab rooms, replacing worn carpet, repainting kitchen cabinets and changing the hardware and making sure the landscaping is neat and trim -- in short, improvements with a small price tag that can have a big impact.

Ideally, you'll want make these moves close to the time you intend to put your house on the market. In fact, before you spend any money preparing for sale, I suggest that you invite a few real estate agents in to make a pitch for listing your property with them. While they're there, ask them what relatively inexpensive improvements they recommend to increase your home's potential selling price. An experienced agent who's been in and out of hundreds of homes with hundreds of buyers should have a pretty good idea of which relatively inexpensive improvements have the most potential for boosting your selling price.

So I suggest that for now you keep your focus on saving for retirement. And when it comes time to get your house in shape for sale, remember: well-chosen low-cost improvements are likely to provide a bigger return on your money than splashy expensive ones. To top of page

Send feedback to Money Magazine
Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

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.