John M. Lee: Profitable Remodeling Projects

Working on the home seems to be an American habit. Remodeling is rampant in our society and television shows on home improvements are as popular as ever. With our housing prices being the highest in the United States, many homeowners make the decision to remodel and add onto their home instead of selling it and buying a new one.

There are home improvement projects that make economic sense and others which do not. If you are undertaking a project for self-satisfaction, then there need not be an economic factor associated with it. For example, adding a swimming pool in San Francisco will not enhance your property value, but your enjoyment of swimming in a private pool might give you joy and pleasure that cannot be measured in economic terms.

However, most people want to make sure their improvements will enhance the value of the home and enable them to sell the home for more in the future. The cheapest way to improve its value is to do minor cosmetic items, such as painting, refinishing hardwood floors and changing outdated carpets. These cosmetic items will pay for themselves many times over when you are selling and they are some of the most inexpensive improvements you can make. Money spent on cosmetic improvements that buyers can see enhance value tremendously.

Undertaking improvements that buyers cannot see, such as replacing a foundation, installing a new roof or changing a water heater does not give you as high a return as the less costly improvements. The reason being that buying a home is a very emotional process,so cosmetic improvements that appeal to the senses result in a higher return on your investment. The other structural work cannot be readily seen and thus does not result in a higher price. However, having a bad foundation or a leaking roof can result in a lower price. That's because buyers are expecting a good foundation and a roof that does not leak. They will not pay more for a good one, but will deduct for a bad one.

Other simple remodeling activities that bring good returns are changing light fixtures and hanging nice pictures or mirrors. Well-placed mirrors can make rooms appear larger than they are. Nice pictures can bring focal points to a room and direct attention to certain areas.

More expensive improvements, such as remodeled kitchens and bathrooms, also add significant value to a home. However, these types of improvements can be expensive and time consuming. Make sure all your plans are in place before you start; otherwise, you are bound to be frustrated. Also make sure you have a good and experienced contractor before you begin. Otherwise, you will be sure to run into problems during the process.

Remodeling can be a very stressful time because strangers will be working in your home and there are bound to be scheduling problems and conflicts. You will encounter situations where workers are sick or do not show up, and will have to work around these issues to have a successful remodel.

Because real estate is so different and its worth differs to different people, quite a number of individuals are remodeling for profit. Some buy fixer uppers, remodel, and sell for a profit. Others buy homes, live in them while fixing them, then sell them after two years to take advantage of the tax law where $500,000 of profit ($250,000 for single) is excluded from taxable gains if the property is their principal residence and they have lived there for two out of the last five years.

In our real estate market, because our property values are so high, housing stock so old and remodeling relatively cheap as compared with housing prices, when people buy a home they spent a large amount on remodeling prior to moving in. Keep in mind that simple things will bring a larger return on your investment than the more expensive projects.

John M. Lee sold the most properties at his Pacific Union office in 2001. If you have any questions regarding real estate, call him at (415) 447-6231 or e-mail him at isellsf@aol.com.