My grand-mother always said if you watch your pennies the dollars will take care of their self. The truth of the matter is that if you choose the wrong renovations for your home you may well turn your dollars into pennies because pennies on the dollar is what you will get in return when you sell the home.
If the three most important considerations when buying a house are location, location, location, than neighborhood represents the three most important when renovating for future recovery. The point here is that you want to be able to sell your home at some time. And how much you'll be able to sell it for is determined mostly by your neighborhood.
Many people buy their home with the idea that they're going to live there forever. Statistically, however, most people sell their homes within 7 to 9 years, depending on the area of the country in which they live. If you can think of your home as only a temporary residence, at least for financial purposes, you'll go a long way toward making the right renovation decisions.
As you probably learned when making offers to buy homes, price is determined by doing a comparison of recent sales. You see what comparable homes have sold for in the area, and then you extrapolate what the house in question is worth. You deduct a bit if the house is run-down, add a bit if it's renovated, and that gives you (and ultimately the buyer of your home), the price.
The occasional over-improved home in a given neighborhood rarely brings the price it should because it is out of place. Conversely, the slightly run-down home in an otherwise great neighbor can be the best buy you will ever make.
Thus, the first thing you should do before renovating is tour your neighborhood. Get to know your neighbors and where possible, get to see their homes. Find out what they or the prior owners did in terms of renovation or improvements.
For example, if everyone has added a bonus room (perhaps because the homes are simply too small), then this will automatically be calculated into market pricing. Your home without a bonus room will take longer to sell for possibly much less money. Your home with a bonus room will sell quicker and, presumably, for at least as much as its neighbors. The same holds true right down the line with every change made to the home that differs from the original floor plan and design.
Of course, this rule works best with tract homes where there are many similar properties. It's far less reliable in areas of custom homes where every house is different. Nevertheless, it can be applied in custom homes as well. For example, if all the custom homes in an area have a built-in pool or spa, you probably can justify putting one in yourself. If your home doesn't have it, it will probably not sell for as much (if nothing else, on a square-foot basis) than its neighbors. With it, it will be able to compete in the marketplace.
The whole idea of visiting your neighbors' homes is not to admire their improvements; it's to get a feeling for what the home renovation standards for your neighborhood are. In some areas, there will be few to no improvements. In others every home will be renovated. Take your cue from your neighborhood. It will tell you what you should and shouldn't do.
The second thing you should do is never miss an open house when property is for sale in your neighborhood. I try not to waste the agent's time when I visit. I simply say I am a nosy neighbor and let them take care of someone who may be a real buyer. They really don't mind your being there; the more people looking the more motivated a potential buyer becomes.
