I read an article this weekend that says that on average, the national percentage of single family homes sitting vacant is 18%! Just two counties over from me, in the playground of the rich and famous otherwise known as Naples, Florida, the number is apparently 32%!

The article just added another nail to the coffin of my “old” financial plan, which was entirely based on the “equity” I was “building” in my two Florida homes. It’s not like I didn’t know it was already dead, but this article even poured water on the coals of hope I was quietly keeping warm while dreaming of a rebound in home values.

Is the term “have a cow” still in existence? Well that’s what I would have done when I read the projection of as far as 2030 before we see 2006 prices in some parts of Florida. As it was, I barely flinched.

Not sure if that’s a sign of strength, or that I need a crash cart.

So What Does It Mean?

One thing it means is that the reason people remodel isn’t going to change back to “it’s a great investment” anytime soon. I think that will fundamentaly change the game.

It’s going to result in a much more reasonable thought process of remodeling homes to meet a few more elemental needs:

• Real NEEDS
  • Must have more space (not want more space)
  • Must have new cabinets (old ones are falling apart, not old ones are dog ugly)
  • Must have handicap accessibility (grandpa is moving in next week)
  • Must have a new roof (this one leaks in more than one spot)
  • Must fix this broken thing or that broken thing (wife has divorce lawyer ad on fridge)
• Long Term View
  • Year One – Deck (my deck)
  • Year Two – Barbecue Area
  • Year Three – Gazebo
  • Year Four – New Landscaping
  • Year Five – Swimming Pool (oh wait, the kids are almost grown – hot tub)
• Pride of Ownership (it may be small, but damn it looks good)
  • Immaculate lawns
  • Perfect white picket fences
  • Window Boxes
  • Painting
  • Landscaping Projects
  • Front Doors
• Alternatives to Big $$
  • Painted Kitchen Cabinets
  • Bunk Beds vs. New Rooms
  • Built-In space saving storage
  • See section on Long-Term and apply to any area of home.

The Future of DIY is Huge

DIY tends to start small and grow. Rather than hire a landscape contractor to build a planter, you decide to give it a shot.

When that works, you figure you know how to work the saw now, and maybe build a bench, or replace a broken piece of door trim.

Next thing you know, you’re replacing whole doors, then doing drywall, then you build a shed. The point is that necessity and a simple financial equation will get you started on the road to DIY, then you’ll see that you can do it and that the how-to info is available right now online. And that you can save buku bucks.

Unfortunately for the contractors, the expenses of doing business aren’t changing and that means that the real pros will still be expensive and the fly-by-nights will get worse and do more flying.

It all points to DIY. So you might as well get to it!

Just my opinion… what’s yours? Comments are always welcome.

When homeowners are considering a remodeling project, the question “What will it be worth?” is one of the foremost for many. The idea that the work is in many ways a real “investment” has served as great comfort to folks as they write the check for Draw#1. Things have changed though, at least for now.

While I know that the prevailing sentiment is that things have certainly changed for the worse in all things real estate related, I prefer to look at the bright side. I don’t say so easily either, I’m certainly among those who would be considered “severely” impacted by the market shift. But that’s another story.

Before getting into the bright side, let me explain a little bit about how people have gone about determining value in years past.

Cost vs. Value Report

Remodeling Magazine publishes an annual report called the “Cost Vs. Value Report“. The report goes to great lengths to help determine what the resale value of a project is in different markets nationwide.

They do this by providing specs for a typical project, such as a Bathroom Addition, to remodeling contractors in each featured market for the given year. The remodeling contractors provide cost estimates, based on the prescribed specifications.

The researchers also provide the same specs to a selection of local real estate professionals, including appraisers and real estate agents. It’s up to this group to review the project and give an estimate, based on their own experience, as to what the project will be worth.

A Great Sales Tool

This Cost vs. Value report is widely used as a sales tool, or at least it was when values were a little stronger. A home improvement seller such as a general contractor, a window replacement firm, or a siding company, would show the prospect in black and white what they could expect to get for the work if they sold the day it was finished.

Siding has always been strong for example. So the siding contractor shows you a report published by a national magazine, an apparent expert on the market, which clearly shows that you will recoup 90% of your investment. I know that any decent salesman would add the line “and that’s if you sell today! Clearly it will be higher in a year from now as the house overall appreciates.”

I know, because I’ve said those exact words, though I never used the report.

Average Cost Per Square Foot

This is the resale value method I always used when a client asked me “What will it be worth?” My answer was fairly boiler-plate and it went like this:

“Well, it seems that the houses in the area are all going for about the same price per square foot. I’m no expert on value, but It stands to reason that if we make your house 500sf larger, then you can just multiply out that number to get a decent estimate of the value.”

This worked fine for me because I was selling room additions for the most part, and reading it now, it makes perfect sense. In a predictable world that did what it was supposed to do, it would still make sense. But it doesn’t; not today. Not for now.

The Mental Cost Reduction

The purpose behind all of this is what I think needs to change. I think way too many people, on the professional side, and on the consumer side, were focusing much to strongly on the investment value of a home improvement project.

The homeowner sees an estimate, say it’s $100,000.00. That’s a whole lot of money! “Maybe I don’t want to spend $100,000.00″ they think. But they want that space, there must be a way to make that make sense. And this is where resale value of remodeling comes into play.

What if the client believes that they will have $100,000.00 in value from day one. Then how much are they spending? Zero, right? It’s no longer an expenditure, now it’s a transfer of funds from one place to another. Why not put it in the house where we can enjoy it?

The same would apply if the report shows them that the value will be $75,000.00. “Well, at least this is only costing me $25K, the rest is real value.” Makes perfect sense, right? Not today. Not for now.

Borrow, Borrow, Borrow

This actually could make some sense, even today, for those buyers paying cash. I’m among the majority who still hold out hope that real estate values will, eventually, bounce back and return to being an asset that appreciates, rather than one that drops in value, like a rock.

But the idea of borrowing based on these estimates of resale value seems very misguided to me at this time. Which brings me to the good news.

The Bright Side

Remember me saying that I wanted to look at the bright side? I bet you were starting to forget there was one! I know I was. My own writing was depressing me! I wonder if that means I should do some editing?

But the good news is really good news.

If we all wake up from this hypnotic trance where our homes are our “biggest single investment” and consider them as HOMES, not investments, I think we’ll start making much better choices. Much better!

Raise your hand if you’re confused.You’re not a loone, er, I mean, alone. I think most people who are ready or are planning to remodel are asking themselves the same question… how much should we spend?

And since I’m immensely intelligent, I have the answer. No, not really. But I do have some thoughts on the subject. Lets start at the beginning…

Manufacturers Offer Consumer Rebates

I got an email last week from the folks at Danze. If you’ve not heard of them, Danze is an Illinois company that “manufactures and distributes fine furnishings for the kitchen and bath”, and they’re having a sale… sort of. Along with the email, I received a photo…

Nice…

Two things caught my eye more than anything else. First, it was the light fixtures which I think are purrdy sharp. Then it was the vanity, which I thought was unique and nice looking. The press release said that they were offering a rebate of up to $125 on vanities. I wonder how much that vanity is… I started thinking.  Ready?… about $1,000.00, give or take.

That’s how I got to thinking about the question “How does one determine a budget in tough times?”

What Kind of Investment Are We Talking?

I’ve seen some husbands choke over the years. (it’s funny and sad at the same time)  A $1,000 little vanity would usually do it. But I’ve also seen $40,000 worth of Onyx in one master bathroom. That makes this vanity look very affordable. It all depends on perspective.

But the times changed dramatically with regard to investment. The days when you could quantifiably say…”we ought to get most of this back in resale value.” or better yet…”we’ll profit from this choice.” … well, let’s just say that option is “temporarily unavailable.”

But there is another entire side of the budget decision. There is an investment in “lifestyle”. There is a heartfelt pursuit of a great environment that changes the way we feel, which of course changes everything. It’s these parameters that drive the high-end market in a tough economy. It’s an investment in emotion, not an IRA.

Permanent Shifts In Thinking

Green. Small. Do more with less. Footprint. Impact.

All of these words are in people’s mind when it comes to the homes they want to create.  These factors can play heavily on the budget for an item… such as a cool light fixture.

You might be willing to spend a little more on the perfect light if you only need one or two special fixtures than if you need a dozen.

Scale can increase item-by-item budget.

Authenticity and Individuality

I’ve been reading a ton about the new wave of design consciousness. People are less apt to accept the same as the neighbors. They want unique and they want it to be uniquely them. Two different things. Both can impact budget.

The Bottom Line

I’m trying to say that while I think overall budgets may go down as people build smaller homes and banks change lending practices, I think there will be more instances of “truly special” items in peoples homes.

So, let me ask you a question… when your overall budget goes down, do you feel like you want at least one splurge item? Like one special part? Or no? I’d love to hear your answer in the comments!

Are you afraid of getting shocked?

You’re not alone! Electricity is the number one “fear” I’ve seen in the homeowners I’ve worked with over the years. With good reason! Electricity can cause some pain, and in certain circumstances it can do worse than that!

Of course, if handled properly, the electrical work in your home isn’t beyond the grasp of anyone willing to learn how to do it right. But it is one of the the areas that I often suggest a pro. That brings up a shocking revelation!

You Don’t Have to Be a Jack (or Jill) of All Trades!

You can have the rewards and cost savings of doing your own remodeling, while at the same time having the peace of mind that the “hard parts” are done properly.

Take a look at this incredible porch!

I’m sure I’ll write more about this porch in the future! I could stare at this for a long time soaking up little details. I particularly love the furnishings shown here! I enjoy building custom tables and I like the size of this one. But I digress. Before I move on, I’ll show you another view:

Let’s say you want to build a porch like this as an addition to your home. The commonly accepted practice is to hire a contractor to handle it all for you. I support that method wholeheartedly! But it’s not the only way.

What if you hire a contractor or an experienced carpenter to build the structure only? Then hire an electrician to run all the wiring and a plumber to run any plumbing. Roofing could go either way, but most people would hire a roofer as well.

So then you have a partially completed structure. It’s sealed to the weather and you’re free to finish the interior as you like, at your leisure. It’s well within the grasp of most DIY Crews to install the ceiling, the siding, the windows and doors, and the trim.

It might not be perfect, but that’s okay. A look like this one isn’t meant to be perfect anyway!

I realize as I write this, that the realities of what I’m telling you are much more in depth. There are plenty of issues I haven’t discussed here, such as:

• Finding a willing contractor (not always easy)
• Dealing with building department and permit issues (important!)
• Knowing exactly which parts of the work to take on
• The obvious downside to this idea (time, aggravation, etc)

I want to go through each of these in-depth, and I will, but it’s too much for a regular post! I’ll cover some of this type of thing in the monthly email newsletter and I’ll figure out a way to get the rest out there before long!

The bottom line is that you can make huge cost cuts in your projects if you want to do even part of the work yourself. Just look at what you want to do and ask yourself which parts you feel comfortable with. Find professionals willing to do the rest!

There is a real sense of satisfaction in getting your hands dirty and improving your home! I encourage you to try! You can do it.

Pictures: Coastal Living

Over the years, I’ve talked to thousands of homeowners considering a remodeling project.

They are at a decision point.

The questions are often similar, often complex, and always cover many facets of life. One of the biggest issues is economics.

——————————————————————————————————————–

The five most common questions on that front are:

1. What do we need?
2. What do we want?
3. What will it cost?
4. What will it be worth?
5. What should we do?

The Big Shift

The way people answer these questions is changing along with the changes in the housing market and economy. Does this mean people won’t remodel? No. In fact, I think it means more people will remodel (since less will be building new homes!).

Merge the economic factor with the Green Movement and you get some pretty interesting changes in the answers to these five questions.

What do we need?

Old answer: “More space, more storage, more garage bays…MORE!”

New answer: “Better use of the space we have; better storage, creative solutions, well designed nooks-and-crannies, better flow…BETTER!”

Areas like the home office shown above are going to be a big part of the future. Not only do people want to make better use of less space, but the trend toward working from home marches on. Home offices are a great place to get creative with design. Take a look at the built-in upper cabinets; they’re stealing a page out of yacht design handbooks with that.

What do we want?

Old answer: see “MORE” response above. People haven’t always been all that interested in trying to differentiate between wants and needs.

New answer: “We want to create an environment that has great design and feels great to be in! We want to eliminate clutter without giving up amenities. We want to live in a space that speaks to who we are and what we love. We want to vacation in our own home!”

American homeowners are willing to give up some space, but they aren’t at all interested in giving up quality!

Words like environment, design, and feel weren’t a big part of the ideas of ten years ago. At least not for the masses. That’s different now.

The growth of places like Starbucks and Panera show that people want to be surrounded by a thoughtful design.

What will it cost?

Old answer (homeowner): “As long as I can refinance and the cost will be less than $____ per month, let’s do it!”

Old answer (contractor): “It’s not going to be cheap!”

New answer (homeowner): “It can’t cost more than $________ because that’s how much cash I have to put into this.”

New answer (contractor): “It’s not going to be cheap, but it will cost less than it would have last year, and I am willing to work creatively to get you more for your money.”

Times have changed, though surprisingly the cost contractors pay to get work done really hasn’t changed much. Amazingly, all the price increases attributed to the high price of fuel remain exactly as they were. Labor rates haven’t dropped and workers don’t work faster.

But budgets have changed. People have less to spend or at least less they are willing to spend. It will be interesting to see how these forces meet. I think we’ll see an increase in people going the D.I.Y. route.

What people must be careful of in a time like this is to NOT hire unlicensed contractors or worse! Even a complete beginner would wish they had just done the job themselves if they end up in a serious mess as a result of bringing in the wrong help to save a buck.

What will it be worth?

Old answer: “It’s gonna be worth at least __% more than I pay for it!”

New answer: “Unless I buy this extremely well, it’s going to take at least ___ years before I can get my money back.”

This does not mean people won’t remodel. It just means that they will remodel for themselves, for what they want and need, not for some future, “maybe, maybe-not” ROI.

What should we DO?

My answer: Create a retreat; make an environment that makes you feel amazing when you’re home. Be sure it encompasses both indoors and out. Don’t let economic worries or budget concerns stop you from making the most of the place where you spend so much of your life.

Whatever the budget, there is a solution. Especially if you’re willing to do a little research and get your hands dirty!

And now, you have me to help. Just let me know what you’re working on; what you’re remodeling dreams are for 2009. I bet I’ll have an idea!

Looking forward to helping you!