Economic Return

As a general contractor, I am constantly being bombarded with the question, “will this improvement increase the value of my home?" and more than often I reply, "Well, that’s a loaded question!" Let me elaborate for a moment. There is a simple formula one should go by in order calculate whether or not a home remodel or fix is adding to the value of ones home. This equation is as follows:
Take the market rate per square foot of your house and then add up the cost of the improvement. Follow by estimating the market rate of your home with that improvement. REMEMBER, you must find a comparable home that has that same improvement or very similar to, in order to calculate the estimated square foot rate. This is because home values are based on comparables in your specific area; so if the cost of the improvement is less than the increase of the homes value, you have successfully increased your homes value by that net amount.
For example, you have an 1800-sqft ranch that has moderate finishes and is pretty comparable to what is in your neighborhood. It is valued at 225,000.00, which gives you a sqft rate of $125/sqft. Now let say you want to remodel your kitchen and you end up spending $30,000 to complete the remodel. Included in these finishes were: Granite counters, mid level cabinets, opening up the kitchen, and relocating a few things (i.e. dishwasher, fridge ect). Once the remodel is complete you should compare that to something in your area. For example, there are a few houses similar to yours that have had those same upgrades and they are selling around 260,000. Well your new value, we can assumable, would be 260,000 but you have to subtract the original value of 225,000 and the cost of remodeling 30,000, which would leave you with a net improvement of $5,000. Hurray, you’ve successfully improved the value of your home by $5,000! But keep mind you had to spend 30,000 to get a 5,000 net improvement. Was it worth it? You always need to ask your self what you will consider a good return is on your investment. If the return outweighs the aggravation and frustration of the remodel, go for it. Also keep in mind that reviewing your budget BEFORE you start to buy materials is essential. In the same remodel example from above, if you chose to go with the pricier cabinets and hardware to where your remodel cost would have been 50,000.00 you would have wound up over improving your home and would not have increased its value when compared to the money spent.
So don’t forget: Do your math before your project. Have a clear plan of attack and know your limits because thing do tend to "grow", and lastly the old man advice is " the money is made in the buy"