Does improving a house pay off?

Even with mortgage rates at about 10 percent, not everyone is looking for a new house. For some people who already have a house, this is a time to use lower interest rates to finance home improvements. Instead of lowering their monthly payments, they are taking out a bigger loan at a lower rate and keeping their monthly payments about the same.

The extra money can be used for doing a new kitchen or bathroom, or converting an attic into an extra bedroom, a backyard deck, or a swimming pool. Any of these changes can add to the enjoyment of your home and possibly increase its resale value.

But when you sell, do you really get back all the money that was sunk into these improvements?

The answer depends on more than the cost of the improvement and its value on the marketplace. First, you have to look at why you're doing the renovation, where the house is situated, and how long you plan to stay. Then you can start thinking about added value.

The best reason for a major change is to make your home more enjoyable. A new kitchen might mean more storage space, modern appliances, and more light. An added room could ease the pressures on a growing family.

How many more years do you plan to stay in the house? If you're going to be moving before this year is over, you probably won't recover your investment in a new swimming pool or new doors and windows. Those doors and windows will pay you back in energy savings over several years, but there are too many other things involved in setting the price of a house for them to make enough of a difference.

One of those other elements is location. If over the years you've made many improvements to your home, such as skylights, major landscaping, an enclosed patio, or a new kitchen and bathroom, you may have by far the nicest home in the neighborhood.

Recently, a couple we know was in this situation. The improvements they made, added on to several made by the previous owners, made their house a showcase of the street. When their children were about to start school, they decided to move to a nearby town where they felt the schools were better.

While they finally did manage to sell their house, this couple went through several months of having prospective buyers walk through it and exclaim how beautiful it was and then say it was out of their price range. Other houses in the area didn't have as many extras, but were more affordable for buyers like this and sold faster.

Such cases often come up in areas where many basic -- and similar -- houses were built in the first 10 or 15 years after World War II. In neighborhoods like these, the prices of all homes will be about the same and a lot of extras on one house won't add enough to its price to pay for putting them on.

What home improvements, then, have the best chance of paying you back at resale? The June issue of Rodale's New Shelter magazine offers some useful ideas.

Of the top home improvements, according to appraisers, the one with the best return is the cheapest and easiest to do. An interior face-lift, including new paint, wallpaper, and, if you have exposed wood floors, a sanding, will return 107 percent of its cost. If you are painting just before a sale, stick to neutral colors. If you want bright colors, do it with curtains.

The next best return comes from an attic conversion, with a 104 percent return. If you need an extra bedroom and you can choose between putting it in the attic or in the basement, go with the attic. Even if basements are well lighted and dry, they are perceived as dank, dark, and far away from the mainstream of family activity.

Basement conversions did score a 98 percent return in the survey, and if you waited a few years before moving, you would almost certainly get all your money back.

The same thing could be said about an added fireplace, which came in fourth. Its immediate return was 85 percent, but that would increase as time went on. If you do add a fireplace, try to build it in. You can get a prefabricated fireplace that is installed at the end of a room and surrounded by brick. This will do better than a free-standing fireplace, which some buyers may see as lacking in quality.

A major kitchen remodeling brings back 74 percent of its cost at resale; a major bath remodeling picked up 71 percent of cost. Both may provide a higher return if you do some work yourself.

Maybe you can't install new kitchen cabinets, but you may be able to rip the old ones out. Hooking up a sink in the kitchen or bathroom so the pipes don't leak has to be done carefully, but tearing one out doesn't need much skill at all.

Adding a room to the house isn't as common as it used to be; nowadays people tend to move instead and families aren't growing as fast. Still, this can provide an average 69 percent return at resale. But depending on the type of addition -- a bigger, more modern kitchen-dining area, for instance -- it could bring in as much as 100 percent of its cost.

Don't buy all new kitchen appliances just before a sale. The new owners will appreciate your generosity, but you just won't recover the cost.