Re: When do you spend money to improve a home with an underwater mortgage?
First, it is unclear what your plans are with this home. You say it's not a "flip", but the questions imply that this is neither a primary residence nor a permanent residence. If it will remain your primary residence for at least the next five years, then you may recoup your current investments. If you plan to keep the home more than 10 years, then further rehab may be in order, depending on the magnitude and necessity. If this is to be a permanent residence, then no amount of money spent to make it what you want and need it to be will be ill spent.
Barring interference with the market, the real estate market follows roughly a 10 year cycle. It will slowly swing up to the top of the market, hold the peak for about a year or two, then the bottom will drop out and the property will be worth about what you bought it for a decade ago. This last cycle remained artificially bloated for several years - I bailed in '02 - the market continued for another astonishing 4 years until we find ourselves where we are today with unprecedented foreclosures and other problems. But I digress.
If this is to be your primary residence for less than the next 10 years, then you only want the home to be comfortable and habitable. If you're going to hold onto the home for longer, then more personal creature comforts are in order, keeping in mind that the real estate market will rebound eventually. If this is to be a permanent home that you will never sell, then don't worry about what improvements you make because they will never directly benefit you as far as resale goes, but they will make this your dream home for as long as you live.
Your perspective on value must coincide with your plans for the home. Remodels and upgrades should be commensurate with those plans.
I suffer from CDO ... Its like OCD, but in alphabetical order, LIKE IT SHOULD BE!!!