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Add a game room, and value, to your home

Not so long ago, we were happy to while away hours playing pingpong or shooting pool in an unfinished basement, spare bedroom or partially cleared garage. Of course, that was before HDTV, video games and Texas Hold 'Em took recreational control of our lives.

To meet today's expanding leisure needs, many homeowners are adding or converting an existing space into a specialized game room. Spend a weekend touring new suburban developments and in almost every model home you'll find a "bonus" or game room filled with toys for kids of all ages.

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But you don't have to buy new to get what builder and remodeler Robert Ernst calls a specialty space. Brochures for resale properties tempt buyers with details on the extra room where you can enjoy all types of entertainment offerings without ever leaving home.

"It all has to do with cocooning," says Ernst, vice president of FBN Construction Company. His Boston-area company has helped homeowners create custom spaces for game rooms as well as for in-home theaters and even home gyms.

"People's time is just too tight," says Ernst. "It's really a function of time. They find the rooms offer a great space where you can have your friends over, have fun and not feel like they're abandoning the family."

Added economic incentive
While game rooms and other home improvements certainly provide a recreational outlet that keeps family members close to home, it's not the only reason that additions are popular. Just as important is the value that a remodeling job can add to a residence.

"With home values going up, people feel it is a better investment to have their money in their homes than in the stock market," says Ernst. "If I invest $100,000 or $150,000 in a specialty space, my house will be worth that much more now and will appreciate more over the years than the stock market."

The historically low mortgage interest rates of the last few years have helped fuel the invest-where-you-live approach. Coupled with already-escalating property values across most of the United States, many homeowners pulled out extra cash via refinancing and put the money back into home improvements.

Today's homeowners have a variety of choices to make their home pay for its own upgrades:

  • Home equity loan: Homeowners who want the stability of a fixed-rate, fixed-payment loan secured by a residence's increased value usually opt for this. The most common knock against these loans: The rates are usually higher than on other equity-based products. If you choose a home equity loan, Bankrate can help you find for the best deal in your area.
  • Home equity line of credit: A home equity line of credit, or HELOC, is a variable-rate loan that operates much like a revolving credit card account. The money is there when you want to use it and you don't have to use the full amount that's available. Just be sure you keep an eye on the Federal Reserve Board, because when the Fed raises interest rates, your HELOC rate will go up, too.
  • Cash-out refi: Here you refinance your mortgage for more than you owe, getting extra cash you can use elsewhere. But remember, a cash-out refi means your mortgage starts all over again, potentially putting you further away in time from paying it off.

Home equity borrowing is appealing not only because of the recent low loan interest rates, but also because it's generally easy for a homeowner to be approved for such loans and in most cases interest on the new debt is tax deductible. Keep in mind, however, that all types of home equity debt are risky; if you default on the loan, the lender could foreclose on your new-and-improved residence.

For Ernst's clientele, accessible home equity money isn't the prime catalyst for creating a game room or making any other change to a residence.

"Most of our clients are high-end so they're not depending on refinancing. They have existing funds to do it," he says, noting that $500,000 is spent on the average FBN remodel job. "What's driving our market is the value."

Of course, most folks spend substantially less than that. But regardless of where they get the renovation funds, they should see similar, although smaller-scale, rewards in their home's value -- as long as they make smart changes to their homes. Ernst says all homeowners need to ask themselves: Am I going to get this money back when I sell this house?

"It's not just the dollars you put in, but where you put them," he says. "You can spend $100,000 on something that doesn't meet the 21st century lifestyle and it's an elaborate decoration that's not conducive to day-to-day living. You want to increase value of home and also increase enjoyment of the lifestyle."

-- Posted: Aug. 4, 2005

Home improvements can cut capital gains taxes



How to hire a contractor


Bankrate guide to home improvements


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