Home improvements: some add much more value than others
For some people, deciding what home to buy is easy, compared to figuring out what home improvements to make after they move in. There are usually two main reasons for making major home improvements: the personal pleasure of having a nicer home and, hopefully, increased resale value.
If you are thinking of putting in a gourmet-style kitcken, a heated swimming pool, or a recreation room in the basement, there's something new to consider. With high energy costs and the preference of many people - especially first-time home buyers - for an unfrilled house, many major home improvements won't add as much resale value as they once did.
It is sometimes difficult, however, to find out which home improvements are good investments for resale purposes and which ones are good if you plan on staying in the house for some time. One person who has looked into this is Paula Nelson, a financial writer and lecturer.
''A swimming pool probably has the smallest return,'' she says. Pools, especially heated ones, require a great deal of energy to maintain. Large filtering systems can run up an electric bill very quickly.
''Anything that uses a lot of energy is not going to be as valuable as it once was,'' she adds. This could also include finished basements and kitchens with too much space and equipment. It is also important to remember, she says, while a buyer may be impressed with some new doodad you put on the house, the largest factors in determining the selling price are things like the number of bedrooms and bathrooms, the number of square feet in the house and yard, and the current selling prices of comparable homes in the neighborhood.
In a recently published book, ''Where to Get Money for Everything,'' (William Morrow & Co., New York, $12.50) Ms. Nelson includes a lengthy table of the most common home improvements. The table gives the cost of these improvements (both as an estimated range and an average) and an estimate of how much the improvement will add to the resale value. The table also helps you decide if the renovation is a good investment from another point of view: whether you plan to stay in the home for several years or sell it soon.
Adding a new full bath, for example, is viewed as a good investment whether you plan on staying or selling. On average, the new bathroom will provide a short-term recovery of 80 to 100 percent of the money it cost to put it in. So if the new bathroom cost $4,200, you could expect it to add at least $3,500 to the resale value of the home.
Simply remodeling a bathroom, however, will not be as good an investment. While an older, poorly equipped bathroom should be brought up to standard before a house is sold, putting in new wall covering, fixtures, and flooring will only add about 30 percent of its cost to the resale value.
Another fairly good investment from a resale point of view is a remodeled kitchen, including all new appliances, new cabinets, countertops, flooring, and decorating. While this can be an expensive undertaking, often costing more than
Adding a room to the house may make you feel like you have a ''new'' home with all the extra space now available, but how much of the cost is returned at selling time depends on a number of factors, including how many other homes in the neighborhood have additions. But on average, the new room should return 55 to 60 percent of its cost in resale value.
Energy costs, as noted earlier, are the main reason the return on a swimming pool is not greater. In colder-climate areas, a pool will return only 10 to 20 percent of its cost at selling time, although the return can go up as high as 75 percent in warmer areas and in neighborhoods where there are a lot of pools.
Before you dive into any home-improvement project, Ms. Nelson suggests you consider yourself first. If you are doing the job only because you think it will add to the value of your home, you probably should not bother. But if you plan on staying awhile after the work is done, the renovation will increase your family's enjoyment of the home and, eventually, return all or part of its cost on the marketplace.
Inheriting a house
We are settling an estate and I am an heir. The estate includes a house which was built 20 years ago and is mortgage-free. There is approximately $100,000 difference between the estimated selling price and the original value. Is this $ 100,000 taxed as ordinary capital gains or under estate tax provisions?WS- W. S. If you sell the house, says Marilyn Pitchford, a tax partner at Arthur Young & Co., an accounting firm, your gain is determined by the ''date of death'' value of the property. So if the house increases by another $15,000 before you sell it , for example, that money is subject to capital-gains tax. Otherwise, the $100, 000 comes under the amount that may be transferred free of federal estate tax. Inheritance taxes in your state, however, may vary, so it would be a good idea to check with a certified public accountant or tax attorney.
If you would like a question considered for publication in this column, please send it to Moneywise, The Christian Science Monitor, One Norway Street, Boston, Mass. 02115. No personal replies can be given by mail or phone. References to investments are not an endorsement or recommendation by this newspaper.
