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Home remodeling: Pick renovations that pay off

If your remote control is stuck on Home and Garden Television, if you recognize Bob Vila's voice sight unseen, and you're on a first-name basis with the clerks at Home Depot, chances are you've caught the home-improvement bug.

You're not alone. Today, Americans are sprucing up everything from Arizona tract homes and New England saltboxes to Florida condos. About half of you prefer the challenge and savings of doing it yourselves, while others prefer to watch as contractors give new life to old rooms.

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But when it comes time to sell, will you recoup the cost of that new master suite, state-of-the-art kitchen or dormered attic loft? The time to find out is before you pull out the power saw or contract for a home makeover.

Should you stay or should you go

Both remodeling and relocating can be expensive. The difference, of course, is that the money spent on remodeling is reinvested into your house, and if you finance correctly, the interest on your payments can be tax deductible.

The American Homeowner Foundation estimates the total cost of moving to be at least 10 percent of your home's current value. In other words, if you can make things right with your home for less than 10 percent of what you could sell it for, it makes sense to stay put and fix it up.

If you have little choice but to move (to a new job, for example), rule of thumb suggests you put the money just as carefully into your new house, not your old.

Equity options

Fortunately, several financing options for home renovations are readily available today.

If you have the equity to match your total project cost, a traditional home equity loan might your best bet. If you are unsure of how these loans work, Bankrate.com's home equity basics can help.

If your improvements include energy-efficient upgrades (insulation, thermal windows, new HVAC system), you might also qualify for energy-saving loans through local utilities or related businesses.

Remodels that pay off

What can you expect to recoup for renovations to this old house?

According to the 2004 survey by Remodeling magazine that compares the cost of construction to likely return on investment (ROI) at resale, minor kitchen remodels rule, returning 92.9 percent of your investment, followed closely by new siding at 92.8 percent.

Here's what's hot in remodels, room by room:

  • Kitchens typically suffer the most wear and tear. And because kitchens tend to follow style and color trends, they often seem dated sooner than other rooms in the home. The most popular minor improvements include adding functionality with dual sinks and cooking stations, and cosmetic improvements such as under-cabinet lighting, marble or granite countertops and ceramic tile backsplashes. To add space, consider a walk-in pantry or breakfast alcove.

    "The younger buyers, especially the baby boomers, want a modern kitchen with the cooktop stove and nice cabinets, not to mention wine coolers and subzero refrigerators," says Mary Johnson, residential specialist with Premier Properties of Naples, Fla. "I think it does make a difference. Even if it's just a cooktop stove, they walk in and say, 'Oh, it's a remodeled kitchen!'"
Next: "Bathroom additions ranked high in the survey."
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Remodeling rules of thumb
Time to tap your home's equity?
How to deduct home equity interest on your taxes
Home equity can be used to buy car
Interest Rate Roundup
Interest Rate Roundup

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