Those home design shows on TV? They’re enough to make even the nicest house seem inadequate.
It’s easy to fall victim to renovation temptation, and when you own a home, there’s always a potential project to embark on. But before you spend your hard-earned money to update your home, ask yourself these key questions.
1. Is there an actual problem I’m looking to fix?
Maybe you’re not in love with your kitchen countertops, or you’d prefer an oversized spa shower to the standard model in your master bathroom. You may be inclined to sink money into making your home more aesthetically pleasing, but before you do, make the distinction between areas of your home that aren’t functional and those that can simply look or function better. If you’re dealing with appearance issues only, you may want to save your money for actual problems -- things like a heating system that can’t warm your home in the dead of winter, or flooring that’s splintered and is a hazard to walk on.
2. How much can I afford to spend?
Chances are, you don’t have unlimited funds to tap for a renovation. Before you take on a new project, figure out what your finances look like. If it will cost $15,000 to have everything remodeled the way you want it, and you only have $8,000 to spend, you may want to postpone that project until you have the money to do it right. And while you can tap your home equity to free up more cash, you may be better off reserving that option for an emergency repair instead.
3. Who will do the work?
Finishing your basement or re-plumbing your bathrooms may seem like work you’re capable of handing on your own. But do you really have the time, patience, and skills for that undertaking? The last thing you want to do is start a project and then abandon it midway through, because if you do, you’ll not only risk losing money, but you’ll also risk having to live with a portion of your home being uninhabitable for a period of time. Therefore, be realistic about what your renovation entails and whether you’re really equipped to tackle the project yourself.
4. Will I recoup my investment?
Ideally, the renovations you make to your home should increase its value. Before you spend a fortune on updates, do some research to see how likely you are to get your money back. If you know a local real estate agent, get his or her input. That, and do your own research. You can look up comparable homes for sale in your neighborhood that are updated to see what their asking prices are. And also, look at recently sold homes with updates to see what price they commanded. You may find that while a $15,000 kitchen remodel is a worthwhile investment, if you sink $50,000 into that same project, you’re unlikely to get that money back because the local market can only support a certain outer limit on home sale prices.
Another thing -- remember that the updates you prioritize may not be the ones the typical buyer finds important. For example, a spa shower might top your list, but will it sway another buyer to not only purchase your home, but pay enough to help you recoup the money behind that upgrade? You may want to focus your financial resources on renovations that are statistically likely to add actual value to your home.
5. Is there a better way to invest my money?
It’s one thing to renovate because you’re unhappy with a certain aspect of your home, or because you’re itching for a change. But if you’re renovating because you’re convinced it’s a good investment, and you have money to spare, you may want to think about other places to put that cash. For example, rather than spending another $75,000 on your existing home, see if it’s possible to use that money as a down payment on a new rental property. Or, take your spare cash and invest it in real estate investment trusts (REITs), which give you a piece of the real estate action without having to take on the responsibility of owning physical property.
Renovating your home could make it a more comfortable place to live and a desirable property to buy. Just make sure that remodel really makes sense before committing to it fully.