Your Home is Still Your Greatest Asset

Why Invest in a Depreciating Asset?

Dont forget the bathroom. Image from Flickr.

Don't forget the bathroom. Image from Flickr.

Many people balk at putting money into their homes in the current situation. Home prices and values are falling, and equity loans for home improvements are all but impossible to get. With falling values, few people have any equity left.

No one can blame homeowners for not wanting to deplete their savings to invest in something that has a depreciating value. However, homeowners must remember that their homes are still their greatest assets, and even if they can’t build value they can slow the fall.

Choose the Project that Fits Your Budget

If getting a loan is not be a viable option, choosing a project that is appropriate for your budget is very important. There are projects that will increase the value of a home that will fit almost any budget level.

You must choose a project that generates the greatest return on  your investment. As always, try to use the bank’s money if possible, but using your savings could still be worth the investment.

High Cost Projects

When choosing more costly projects, the homeowner needs to think infrastructure and not cosmetics. Projects that add to the longevity and energy efficiency of the home should be at the top of the list. One of the up sides of an economic downturn is that prices for services have fallen, too. In relative terms, it may be more cost effective now to make some major upgrades that you have been putting off.

For example, replacing your current siding with fiber-cement or foam-backed vinyl siding can be done more cheaply now and still net an 87 percent return on investment with energy savings and increased home value upon resale. A valuable room that is often neglected is the bathroom. Realtors estimate that a remodeled bathroom can yield as much as a 71 percent return on investment when you sell a home. Remodeled kitchens net a similar return on investment, as well.

Medium Cost Projects

If you do not have access to enough credit or savings for those projects, there are still significant gains you can make without spending quite as much. One of the highest rates of return on investment is actually found outside the home. The addition of a well-made, well-designed wood deck can get you up to an 81 percent return.

If it cost you $10,000 to build the deck, you could add $8,100 to the selling price of the home. If fiber-cement siding is too costly, upgrading with vinyl siding is still a good investment. Vinyl siding garners about the same return as the wood deck: 81 percent. Even minor kitchen remodeling and upgrades will net you a nice return. Upgrading the countertops alone can bring you a better asking price.

Something is Better than Nothing

Even if you can’t do everything, do something. Your home is the most important piece of your financial portfolio, and doing some work now while prices are down can pay off big down the road. The housing market will rebound someday, and you could get an even higher return when it does.

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