Why move to an expensive new house when you can get all the new features you want in your existing home—without any net cost to you!
If your existing home has become outdated, cramped, inefficient, uncomfortable or too expensive to maintain, you may think buying a new house is the only alternative. But selling your existing home and buying again can be more expensive than you think. Factor in realtor fees, moving costs, a potentially longer commute and decorating/furnishing expenses—and the price of a new home may not be your best choice!
Fortunately, there’s a better solution. Renovating your existing home can provide all the lifestyle enhancements you’re looking for at a fraction of the cost. And if you renovate and refinance strategically, not only can your outlay be minimal, your increased asset value can be HUGE!
TIP #1: Make sure you understand WHY you’re renovating.
Before you go too far, stop for a minute and consider why you’re renovating. Is it to make your home more livable for you and your family? Or is it to make your home more marketable so it will sell at a higher price? Both of these are good reasons to renovate.
But an even better reason to renovate is to achieve BOTH! By making improvements that suit your lifestyle AND add value to your house, you can cover much—if not all—of your renovation expenses, so there’s no net cost to you!
TIP #2: Choose a renovation that delivers as high a return as possible.
Not all home renovations are created equal. Sure, almost all improvements increase the resale value of your home. But the increase may not always be enough to pay for the cost of the improvement. To make your renovations pay back as much as possible, it’s important to keep in mind what future buyers want, as well as what you want.
Fortunately, the renovations with the biggest payback are usually the ones you’re likely to want too. Here are the TOP THREE renovations for return on investment:
|RENOVATION||RETURN ON INVESTMENT|
If the renovation you had in mind isn’t in the top three, here’s a list of the renovations that offer AVERAGE payback potential:
|Roof shingle replacement||50-70%|
|Recreation Room Addition||50-75%|
|Constructing a Garage||50-75%|
|Building a Deck||50-75%|
TIP #3: How to make your new kitchen increase your home’s value.
OK, so you’ve decided to renovate your kitchen. Great choice! Now here are the improvements you—and future buyers—are likely to find most appealing.
Open wide. Your kitchen should be the nucleus of your home, not an isolated warren that people visit only at feeding time. Consider removing walls between the kitchen and dining room or den. This gives your home an open feeling, as opposed to the chopped up look of outdated homes.
Triangulate. Create a triangle between the refrigerator, stove and sink so you can move efficiently from point to point. Ideally, the sides of the triangle should be 4-9 feet. Include an island if space allows.
Lighten up. Lighting should illuminate while setting a warm mood. Replace harsh overheads with hanging lights above work areas or recessed lighting under cabinets. Install dimmers. Lighting can create a dramatic difference very inexpensively!
Resurface. Painting or re-facing old kitchen cabinets and adding new door pulls makes a huge difference at minimal cost. Install hardwood or tile flooring. For extra drama (if it fits your budget), replace the countertop with natural stone.
Replace. Get rid of brightly colored or outdated appliances and replace with energy-efficient built-ins.
TIP #4: How to make your new bathroom increase your home’s value.
Whether you’re renovating an existing bathroom or adding a new one, chances are you’ll recoup most of your costs at resale time. Again, here’s what adds the most value for you and potential buyers.
Shiny and new. One truth about real estate is that buyers like new stuff. This is especially true in the bathroom where steam and water make fixtures age rapidly. New tubs, sinks and toilets should be white or cream. For extra pizzazz add a steam shower or whirlpool tub.
Resurface. As in the kitchen, paint or reface old cabinets and add new door pulls. Textured or slate tiles make great flooring, especially if they’re heated.
Lighten up. Make the room look airy and new with bright yet warm lighting and large unframed mirrors.
Maximize space. Choose a small but deep tub, and a tall but compact toilet. Eliminate cabinets and vanities, and install a behind-the-mirror cabinet or cut a niche into the wall. Choose a sleek wall-mounted or pedestal sink, the smaller the better. Use towel rings rather than rods.
TIP #5: How to increase your home’s value by painting.
Painting is so inexpensive—roughly 75¢ per square foot—yet it pays for itself in visual appeal and resale value.
Inside your house, warm and neutral colors such as bisque, cream, fawn, gray, walnut or soft green are often best for quick sale because they’re inoffensive and easy to cover. But you may prefer decorator shades, like vibrant red, bronzed orange, gray/brown or gray/green. Often these decorator shades have strong appeal for buyers too, but it may take a little longer to find the right buyer. Fortunately, it’s quick and inexpensive to change colors at resale if you have to.
The decision’s a little easier outside where natural colors like taupe, gray, olive, gold and warm brown are both stylish and easy to sell.
TIP #6: Energy savings and safety should also be considerations.
Up to now, we’ve been discussing renovations that enhance appearance, convenience and luxury. But there’s also value in more practical considerations. How much your house costs to operate, how green it is and how safe your family feels are equally important to you and future buyers. Here are some things that can save money—and may save your life!
• Energy efficient furnaces and air conditioners
• Improved insulation
• Energy efficient windows
• Ceiling fans in rooms with high ceilings to push warm air down
• Heat circulating fireplaces
• Low flow and dual flush toilets
• Flood alarms and wired-in CO and smoke detectors
• Security systems
Some of these items can be expensive, but over time the money you save on heat, light and water can pay for the upgrades—and make your home more appealing to buyers! For instance, installing an energy efficient furnace and air conditioner can cut energy consumption by 50%. You may also save on insurance by installing security systems and other hazard prevention devices.
TIP#7: Always keep marketability in mind.
Taking a strategic approach to renovations means thinking about future salability every step of the way. Here are some important considerations:
• The more recent the improvement, the higher the return on investment.
• Even if your renovations don’t recoup their entire cost, they usually make your home sell faster.
• If your home’s market value is above the average for your neighborhood, expect a relatively low return on renovations. But if your home is below the average, your return will be much higher.
• Renovations offer a better payback if you live in an appreciating neighborhood.
• If the homes in your neighborhood all have family rooms or third bedrooms, it pays to bring your house in line.
• For maximum resale value, renovations shouldn’t raise the value of your house more than 10-15% above the median sale price of other houses in your area.
TIP #8: Be sure you understand all the financial details before you start.
There’s no point calculating how much your renovations will pay back if you can’t afford to do them in the first place. You need to be absolutely clear on the costs before you begin. Get quotes from at least two local renovators, architectural firms or materials suppliers. Then, take the most reasonable quote and add 10-15% for unexpected costs.
To save money, you may be able to do some simpler steps yourself—like painting—but don’t overextend yourself and end up with an unfinished or substandard job. You may also be eligible for incentives from utilities or governments for energy-efficiency upgrades.
TIP #9: How to make your home pay for your renovations.
Now that you know what you want to accomplish and how much it’s going to cost, if you have substantial equity in your home that will probably be the least expensive source of funds. If you haven’t refinanced in a while, you may find that you can pull the cash from your equity with a new mortgage and still lower your payments because of the lower rates.
An equity line of credit is also an inexpensive possibility, but only if you plan to pay it off sooner rather than later. Even though today’s rate is low, the “life cap” on equity lines is 18% and you don’t want to be caught in that trap.