Home Improvements as an Investment

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We see trends in the type of work to carry out that are influenced by many factors. One of the most influential considerations is the state of the housing market. During 2002, when there was widespread fear of a property crash, many interior design companies were engaged to do a large number of bathroom and kitchen renovations. People were wary of extending themselves into a larger mortgaged property only to find themselves trapped in negative equity in the event of a house price fall. In the autumn and winter of 2003, with house prices stable, people saw a decrease in commissions of all types. In the spring of 2004, with long-term house price stability forecast, we saw a new wave of full-property refurbishment commissions.

While it is almost certain that investment in property will pay long-term dividends (it’s said that the average London house price is set to rise from £250k to £600k in the next twenty years), the behaviour of the individual will still be ruled by the prevailing level of confidence and the latest house price rumour in the newspaper. The safest approach for you as a homeowner is to conduct all home improvements because you want to enjoy the improvement.

Consider the new bathroom and the new kitchen as luxuries that will make your lifestyle better. As long as these major improvements are not overly stylised or personal to your particular taste, they will certainly add to the saleability of your property. This in itself is an advantage if you come to sell.

But do understand that these works are unlikely to increase the value of the property in line with the cost of the project. Research* conducted in the UK has shown that even well-planned and well-executed major improvements will not return the full cost of the work if the house is sold within 30 months of completion. In purely financial terms it makes more sense to sell a property that falls short of your living requirements and search out an existing property that fulfils those needs.

But people don’t make decisions about their homes based simply upon pounds and pence. Many personal feelings and commitments contribute to the decision-making process. So, if you decide to expand and renovate your home, there are a few ground rules that you should observe:

  • Don’t improve a house to the point where the sales price you would expect (or require) is more than 20% above the most expensive properties in the immediate vicinity. These properties will tend to cap the maximum sale price you can achieve;

  • Central heating is expected; if you don’t have it you should fit it;

  • Retain period features wherever possible and heed the architecture of your property when designing your improvements;

  • Do not install an extra bathroom at the expense of a bedroom;

  • Replace an outdated kitchen. But be aware that the value added may not retrieve the cost. There’s nothing wrong with adding a luxury kitchen for your own enjoyment, but face the fact that it’s money spent;

  • Do some research before you knock down walls and go open-plan. It may help the saleability, but does it reduce the value? Local estate agents can help you here;

  • If you have three bedrooms then keep it that way. If you convert one to an office or home gym, make sure you can easily convert it back again prior to selling;

  • The addition of a third bathroom to a two-bathroom house is unlikely to recoup its cost, especially if it is a luxury feature such as a wet room;

  • Out-and-out luxury installations such as swimming pools, while impressive and lovely to have, are unlikely to pull back much more than 10% of the build cost in added property value.

Most interior design companies have the flexibility to work anywhere along the scale, from high-end luxury refurbishment to value-added, buy-to-let property development.

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