Pick Projects That Pay
The ideal fixer-uppers are those that require mostly cosmetic improvements — paint touchups, drywall repairs, floor refinishing — which generally cost much less than what they return in market value. New lighting fixtures, doors, window shutters, and siding, as well as updated kitchens and bathrooms, are also lucrative improvements.

Falling in between structural and cosmetic renovations are major additions needed to bring the house in line with its neighbors, such as a family room or third bedroom in a community of three-bedroom homes. Such projects usually cost as much as or more than they return in market value (the exception to this is adding a bathroom, which can be worth twice as much as its cost).

Sometimes it's possible to fold cosmetic improvements into a structural repair to increase the value of a fixer-upper. If you're replacing the roof, for example, you could add a skylight at the same time. Or you could install a bay window where there was dry rot in a wall. But you also don't want to overimprove: For maximum resale value, remodeling investments should not raise the value of your house more than 10 to15 percent above the median sale price of other houses in your area, according to the National Association of Home Builders.

In places where housing costs have run up significantly and are approaching a peak, even a fixer-upper that seems reasonably priced may be too expensive. A large-scale renovation job can take many months, if not years, to complete, and if home prices fall or stay flat during that period, it's possible to come out at the end of the project with a house that's not nearly worth the investment. "You can't improve your way out of a down market," says HomeGain.com's Inman.

Be Prepared to Roll Up Your Sleeves
Whatever renovation is required, it's usually most cost-effective when homeowners pitch in. "A fixer-upper is for people who are willing to be do-it-yourselfers, because that can save them a lot of money and they can keep the increase in home value for themselves," says Fernando Semiao, a real estate agent at Century 21 Semiao and Associates in Lyndhurst, New Jersey. Many of Semiao's clients can't afford a house in good condition in New Jersey's suburbs but "have the skills to hang cabinets, paint, spackle, install trim, build decks, replace windows, and even put on vinyl siding," he says.

If you're not the hands-on type, be prepared to devote a considerable amount of time — months or even years — to closely supervising contractors. But remember that all of your financial gains could be wiped out if the project goes over budget because of mistakes or unnecessary delays.

Ask TOH users about Home & Real Estate

Contribute to This Story Below