Renovate Your Home The Right Way

FROM THESTREET.COM: The current housing downturn provides opportunity in at least one area–a home renovation–thanks to good deals from contractors and builders.

Homebuilders are feeling the pinch these days. Even the biggest firms, such as Toll Brothers (TOL), D.R. Horton (DHI) and Lennar (LEN), are hurting.

Many builders are turning to home renovations to keep their businesses out of the red, creating competition that is lowering prices in some regions. These factors mean it's a great time to renovate, even if the slumping market has reduced the impact some renovations have on a home's resale value.

Which Renovations to Do

To ensure that your renovation will pay off, make improvements that others will appreciate as much as you do. Kitchen and bathroom renovations still carry some of the highest returns on investment—you'll typically increase the selling price of your home by 80% to 90% of what you spend on the renovation. If you have three or more bedrooms and only one bathroom, adding an extra full or half bath especially should boost the resale value of your home.

But don't install brightly colored backsplashes, or change your bathtub to a shower stall. These projects and others like them are a matter of personal taste, and they may not add value in the eyes of a future buyer.

Also, don't compromise long-term value for short-term convenience. With the kids gone, tearing down a wall to convert half of the second bedroom into your walk-in closet may seem like a good idea -- but it isn't.

Check out Remodeling magazine's 2007 Cost Versus Value report to learn how much money you stand to recoup from the renovation project you're planning.