A Suze Orman exclusive

Which brings us back to the location puzzle. If indeed you dearly want to buy a piece of real estate in a location you can’t really afford, rather than taking out an interest-only loan, my advice is to change your location focus. Instead of aiming for today’s hottest location, aim for tomorrow’s great location. Look in neighborhoods that are on the fringe of the hotter areas. Or towns that are next to the ones where bidding wars break out at every Sunday open house.

Yep, this requires an open mind. You probably need to spend a few weekends driving around (or walking around in city neighborhoods) to get a feel for areas that aren’t currently on your housing radar. And talk up some real estate agents; ask them what areas they think could be the “next” hot area in two, or three, or five years. Remember, you don’t need to be in the neighborhood that’s hot next week. All you really need to be concerned about is what the home’s value may be five or ten years down the line, when you might want to sell.

A “warm”, rather than a super-hot, market area is going to be less expensive of course. And less expensive means you don’t need to resort to an interest-only mortgage. That’s housing smart.

When you do make your move into an up-and-coming area, be very conscious of your surroundings. Don’t pile on a bunch of upgrades and remodeling projects that make your house the fanciest on the block. You don’t want to stick out! It’s actually bad business to have the nicest house on the block. Remember, future home buyers are always going to be looking for the best value. The swankiest and priciest house on the block doesn’t exactly scream “value.” So you could be pricing yourself out of the going rate for the area if you doll up a house beyond the norm for your neighborhood.

And if you do plan upgrades, pay attention to the actual investment value of what you are doing.

In a normal world, where I expect a 4 percent average annual appreciation rate, you are going to want to wring every penny out of your home when it’s time to sell. And part of that means not blowing it today by overspending on home improvement projects whose costs you will never be able to recoup.

According to a joint survey by the magazines Realtor and Remodeling, the 2004 average national “return” on remodeling projects was led by bathroom upgrades, with ever-popular kitchen remodels being the least cost effective. Take a look at these numbers, which are the percentages of the estimated value added to the house against the actual remodeling costs:

The thing to take note of, obviously, is that not one of those projects recouped 100 percent of their cost. That means that renovations don’t usually add value to your home. They add value to your quality of life, and they may help you sell the home for a good price. But there is absolutely no guarantee you will totally recoup your costs. Which means it is extra important to pay attention to those costs.