Which do you think are the best home improvements for your house? You’ve earned it, now how you going to keep it?
by Tim Broadway
Like many people, you might be under the impression that home improvements are good investments that pay for themselves when you sell your house. You’d be wrong in most cases. Except for steel entry doors, that is.
Such doors tend to recoup 102% of the construction cost when a home is sold. A front door made of fiberglass–which actually costs more to buy and install–won’t pay off nearly as well. It only pulls in 60% of its original cost.
The sad truth is that most home improvements are like fiberglass doors, and won’t come close to paying for themselves. Some projects–namely room additions and upscale remodeling–are just plain dollar drains, according to the 2010-2011 Cost Vs. Value report.
The annual survey, conducted by Remodeling magazine in collaboration with the National Association of Realtors, compares construction cost estimates (provided by HomeTech Information Systems) with resale value estimates (provided by members of NAR) across the country for 35 mid-range and upscale home remodeling projects.
In 2005 renovations would, at the very least, recoup their costs on resale. Nowadays almost none do. With home prices tanking the past several years, the return on renovations has suffered, especially when it comes to high-end jobs.
“The first projects to start losing value were the bigger-ticket ones, and even now, when people are doing larger-volume projects, they still don’t spend what they used to,” explains Sal Alfano, editorial director of Remodeling magazine.
“You’re competing against the prospective owner’s opportunity to build it [an addition or upscale remodeling] themselves,” seconds Elizabeth Mendenhall, vice president of committees for the National Association of Realtors. When it comes to renovations, it’s vital to keep potential buyers’ tastes in mind, not just your own, she says.
Obviously a homeowner with long-term plans to settle down should remodel however he or she sees fit. Construction costs are still down, and if you want to build that bright pink dream kitchen, have at it. After all, many homeowners are now opting to stay put and update their current homes to better fit their lifestyles.
Just be aware that that decadent kitchen will only retrieve $597 of every $1,000 spent if you decide to list. Other projects sure to lighten your wallet: Home office remodeling, which redeem a measly $458 of every $1,000 spent, sun room additions only $486 and bathroom additions at $533.
These numbers, based on a national average of local comparisons gleaned from across the country, vary relative to each market’s values and demands. If you want to know how a project will specifically affect your property’s value within your neighborhood, query a local Realtor, urges Mendenhall.
If you’re going to shell out money on improvements, focus on your home’s exterior. Windows offer relatively decent returns, as do garage door replacements and siding replacements. Still nothing, save that steel entry door, refills the home improvement coffers 100%–or even as much as 85%. The bright side is these fixes can boost energy efficiency, offer potential tax savings and, when the time does come to sell, add ever-vital curb appeal to your home.
Aspiring sellers would do well to make some basic fixes as well. Forbes reported last year that sellers could improve their homes for buyers more efficiently–and more cheaply–by simply tidying up the rooms and slapping a fresh coat of paint on the walls. Steve Domber, president of Prudential Serls Prime Properties, a real estate brokerage operating across New York state and Connecticut, also suggests replacing old carpets, using neutral colors and bringing more light into the home.
Michael Nairne Jan 7, 2012 – 8:35 AM ET | Last Updated: Jan 6, 2012 12:44 PM ET
There are five pitfalls to avoid if you want to preserve your wealth.
When it comes to wealthy families, the expression “easy come, easy go” is more aptly rephrased “arduously earned, easily extinguished.” Serious wealth typically arises from decades of hard work, investment and calculated risk-taking. Yet, hard-won wealth easily dissipates if it is not managed properly.
In fact, JPMorgan Private Bank studied the ultra-wealthy Forbes 400 Richest Americans and found that fewer than 15% of these multi-millionaires stayed on the list over a 21-year period. The majority saw their wealth stagnate or, worse, watched it decline. By delving into these experiences, JPMorgan identified the primary pitfalls in preserving wealth as well as the antidotes. Here are the top five.
1. Excessive concentration in a particular asset is the foremost pitfall. Wealth concentration in a single stock, even one of a large company, exposes an investor to a host of risks that can permanently impair capital. Whether it’s due to the fading fortunes of an entire industry, management pratfalls or a changing competitive landscape, any single investment can easily lose value, sometimes precipitously. How many Research in Motion Ltd. multi-millionaires are no longer “multi” as a result of this stock’s dramatic fall from grace?
Unfortunately, many wealthy families get caught in the trap of overconcentration and never implement the solution — broad asset class and security diversification. The memory of past successes, the prospect of a nasty tax bill on gains and excessive optimism encourage inertia. Some are lucky and see things turn out well, but many aren’t so fortunate.
2. Too much leverage. Borrowing magnifies gains, but it also dramatically amplifies losses. The impact of excessive leverage is particularly pernicious during bear markets, when falling values can trigger margin calls in brokerage accounts or demands for additional collateral on bank loans. These can result in the forced liquidation of investments at fire-sale prices.
Unfortunately, in the blind pursuit of more money, many affluent individuals forget their paramount goal is to stay wealthy. The use of leverage needs to be judicious. In particular, the amount and terms of any borrowing should be fashioned such that the family’s wealth remains fundamentally intact should a “worst-case” scenario play out. Many family fortunes were destroyed in 2008 and 2009 due to the failure to recognize that severe recessions and deep bear markets are inevitable — only the “when” is uncertain.
3. Chronic overspending is the third main pitfall. In my experience, most wealthy families do not budget. This is rarely problematic when times are good and money is rolling in, but in periods of lacklustre returns, excessive spending can outstrip returns and erode capital. Some families then get caught in a downward wealth spiral, withdrawing an ever-growing percentage of their capital as incessant spending depletes their portfolio.
Wealthy families need to scale their spending to their capital base. Those focused on long-term wealth preservation should keep annual spending at no more than 3%-4% of their portfolio value. Monitoring spending is also critical.
4. Taxes are the fourth major cause of wealth destruction. Unfortunately, many high-net-worth families fail to fully integrate their investment, tax and estate planning to minimize this drain. Savvy families and their professionals take an integrated wealth-management approach to their finances.
5. Finally, family dynamics can impair wealth. Discord among family members, often after the death of the parents, can lead to intemperate decisions about the family business and other assets, or costly and protracted litigation. Another classic fiasco is the squandering of wealth by spendthrift children who were never educated in the stewardship of the family fortune.
Forward-thinking wealthy families have implemented formal governance structures, including regular meetings, co-operative decision-making, family philanthropic projects and financial education to better prepare the next generation for the responsibilities of wealth.
Many a wealthy family has found that preserving wealth can be as challenging as creating it in the first place.