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On paper it seems simple: $30,000 for a kitchen redo, $16,000 for a new bathroom, $44,000 for a family room addition.
But what are the true costs of those home improvement projects? For example, that kitchen redo could actually be done for as little as $20,000, and the new bathroom may actually cost just $12,000.
On the other hand, a family room addition that costs $44,000 on paper may end up costing twice that much when you factor in decorating and furnishing that room.
The true cost of home improvements can often differ from the on-paper costs, and those costs can go up or down depending on the type of project.
For example, the way you finance the project can affect the true cost. The biggest "savings" can come from a tax deduction if you pay for the improvement through a home equity loan or home equity line of credit.
The interest on a home equity loan or line of credit can be deducted from your federal income taxes. As most loans are set up so that the homeowner only makes interest payments, or payments that are heavily interest-oriented, the savings can be substantial.
On the other hand, stretching out the cost of a home improvement over 15 years or more can add to the total cost.
Home value appreciation can help offset the on-paper costs. For example, if you add a $44,000 family room addition to a home valued at $200,000, it's likely you'll be able to turn around after a couple of years and sell the home for more than $250,000, especially if you bought one of the smaller, less expensive homes in your immediate neighborhood.
If you're able to sell that home for $250,000, your addition added $6,000 in value.
The danger, however, is that you might over-improve your home by the standard of the neighborhood, and actually add to the total cost of the home improvement. Take the above example: What if you were able to sell the same home for only $234,000? That addition cost you an extra $10,000.
You can also lower the total cost of a home improvement project with energy efficiency savings. If you add insulation while putting a new roof on your home, you'll see a drop in your heating bills the following winters.
New appliances -- from furnaces and central air conditioners to refrigerators and ceiling fans -- can also trim your heating and electric bills. While energy-efficient devices may be more expensive upfront, they'll pay for themselves quickly. Look for those products that have an EnergyStar label.
Home improvement projects can save you money over time on maintenance. For example, if you add vinyl windows or siding to a home, you'll never have to paint that home again. That can save tens of thousands of dollars over the years you spend living there. |
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 To find the true cost of a home improvement, ask a contractor or supplier to help you calculate long-term savings.
Tell estimators to be conservative with the savings.
Calculate the costs of a home equity loan that's being used to pay for a home improvement project.
While in the planning stages of a project such as an addition, carefully add in the cost of decorating and furnishing the project. Don't be conservative.
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