For most Americans, their home is the single largest expense in their personal budget. Additionally, the equity in it can represent more than half of the value of their retirement nest egg. These facts combine to make housing related decisions very much financial decisions. The smart money is on looking at renovations as a financial investment at least as well as a means to make a home more comfortable for the current residents. Spending too much money on something that will not pay off when the house is sold is an excellent way for someone to lose their shirt.

Conversely, investing in renovations that will raise the sale price more than they cost is an excellent way to turn sweat equity into financial security for the long haul. Counter-intuitively, luxury renovations are not the best means to turn a profit. The things that pay off the most are those that bring the home up to modern standards or standards for the neighborhood. Adding a pool is typically a poor investment, but modernizing the kitchen has long been one of the best bets for return on the dollar. Bathrooms and basic systems, such as the HVAC system, are other good bets.

Kitchens and bathrooms are good bets in part because they are workhorses for any house and they have a lot of built-ins. Other rooms are much more than bare walls and a floor. They get customized by the addition of furnishings. Not so with kitchens and baths. The combination of built-ins, plumbing and the critical nature of the function of these rooms means they are a huge hassle to renovate while a person lives there. It shouldn't be at all surprising that most people far prefer to have them in good shape before they move in. So, year after year, bringing the kitchen and bathroom or bathrooms up to speed is a good financial bet. Increasingly, another good bet is making sure a home is energy efficient, low maintenance and has modern systems in place. These include grounded electrical outlets, enough electrical outlets and sufficient electrical capacity so the breakers don't trip when the microwave turns on. Other good bets are finding low cost ways to add space, such as finishing the basement, and making a home more accessible. Accessibility is not just about accommodating someone who is handicapped. It is also about accommodating both seniors and parents of small children.

Common Questions

Q. Does the kitchen have to be gutted, or are there low cost kitchen renovations that pay off?

A. In most cases, the kitchen does not have to be gutted. Since cabinets typically account for about 60 percent of the cost of a kitchen, leaving them in place can save a lot. For a few thousand dollars, the appliances, flooring and countertops can be replaced.

Q. What is the single best financial bet in renovation today?

A. Adding insulation. It isn't sexy, but it can more than pay for itself even if the house is sold shortly after installation. Unlike many other renovation projects, it also helps pay for itself without selling the house by lowering energy costs.

Q. What are the cheapest ways to add space?

A. Finishing the basement or turning the garage into living space are two of the cheapest ways to add more floor space. They already have the shell, which is a large part of the cost.

Q. What is a good indication that it will make financial sense?

A. Bringing things up to standard for the neighborhood is one of the safer renovation bets. Details of the house that are substandard for that neighborhood rarely lose money. Visiting a few neighbors can be a quick and easy way to see where the house stands.

Q. What are some simple accessibility fixes?

A. Non-skid floors, easy to use single handle faucets and good lighting are wonderful choices. Poor lighting contributes to falls in the elderly and can be a cheap fix that is often overlooked.

Q. What is a good rule of thumb for making it pay?

A. Keep costs low and stick to basics. Making a house more functional will pay off. Adding chandeliers won't.