For most people, their home is not just their castle, it is also their nest egg. Most middle class people have more than half of their net worth tied up in equity in their house.
For this reason, it is wise to consider home improvement with an eye to the bottom line. Unless you are rich, you can’t really afford to look at it as merely a chance to improve your personal comfort. You should look at it in terms of improved resale value as well. Here are some questions to ask yourself to decide if it is financially worth it.
Is my house already at the top of the market for my neighborhood?
If the answer to this question is “yes,” then you should probably move to a larger house rather than try to expand this one. You won’t be adding anything to the bottom line. You will just be creating a white elephant.
Are there areas where my home is deficient compared to the norm for the neighborhood?
If the answer to this question is “yes,” then those are areas where home improvement may also improve your bottom line. If you have only one bathroom, but most of the neighbors have two, then adding a second bathroom may mostly pay for itself. In some cases, it may even more than pay for itself.
Is my home historic?
If your house has historic value, you may want to look at restoring it rather than renovating it. This means repairing any problems while remaining historically accurate for color choices, style and function. If the house is very valuable, you may want to talk with a restoration professional rather than trying to do it yourself.
In addition to the above considerations, it may help to keep in mind the following rules of thumb:
Judicious kitchen and bath improvements are usually a good financial bet.
Installing a pool usually does not improve resale value.
Converting the attic, basement or garage to living space is usually more cost effective than adding on.
In real estate, location is king. Some of the strongest influences on resale value include what neighborhood you are in and whether or not it has a good school system. But there are things you can do to improve the value of your house, if the project is well planned.