3 Little-Known Problems With Making Home Improvements

There may come a point when you decide you're ready to improve your home. And if you can swing the cost of paying off renovations on top of your mortgage, then you may be eager to go for it.

After all, improving your home could enhance your quality of life. And besides, you can always try to recoup your money when you go to sell your property.

But while improving your home might seem like a great thing to do, it has the potential to backfire on you. Here are three reasons why.

1. Your property taxes might skyrocket

Your property taxes are calculated by taking the assessed value of your home and multiplying it by your local tax rate. And to be clear, your home's value can rise a lot from when you sign your mortgage loan, whether due to market conditions or other factors.

But if you make major improvements to your home, there's a really strong chance your assessment will rise and your property tax bill will follow suit. That's an expense you might find difficult to bear, especially if you're in the process of paying off a home equity loan or HELOC you took out to finance your improvements.

2. Your home might become 'too rich' for your neighborhood

There's definitely such a thing as over-improving a home. If the typical house in your neighborhood has an assessed value of $300,000, but you improve yours to the point where your house becomes worth $450,000, that's actually a problem, even though you may not think it is at first.

Selling a home that's the most expensive one in town isn't always easy. And also, when your home is worth so much more than the others around you, it can become difficult to fight back against property tax increases.

Say your tax assessor raises your home's assessed value from $440,000 to $450,000, but homes in your area have been selling for around $300,000. In that case, you're not going to have comparable sales to point to in order to argue that you've been overassessed.

3. You may not get your money back when you go to sell

Home improvements can raise the value of your home and get you a higher price at resale. But it's actually pretty rare to get all of your money back on a per-project basis.

Remodeling Magazine recently put out a "Cost Vs. Value" report that explored 23 popular home improvement projects, including garage door replacement, window replacement, and bathroom remodeling. It found that only four of those 23 were likely to result in the full cost of the project being recouped at resale. So while you might think that spending $40,000 to redo your kitchen is apt to add $40,000 of resale value to your home, that may not happen.

There are plenty of good reasons to make home improvements. And if you can comfortably afford the ones on your list, you may want to get started sooner rather than later. Just be aware of these pitfalls before you firm up your decision.