We work with people who are planning to significantly improve their homes. Every one of them must evaluate the benefit of the upgrade against the financial cost. It can be difficult to see through the excitement and big ideas to the bottom line.
Here are some questions that you should ask yourself:
Do we owe more than the house is worth? This is called “being underwater” in the real estate world. It would not make sense to go into debt to improve a house that is “underwater”. The exception is if you are willing to do the work for modest improvements on your own.
- Will we get the value back when we sell? The following projects provide the best return: replacing siding, upgrading windows, adding on a Family Room or Bedrooms, upgrading the Kitchen, upgrading the Bathroom and finishing your Basement. (approximately 70%-80%)
- Are we over building? Will this project rocket your home to the most expensive house in the neighborhood? If your neighbors all have laminate counters, think carefully before you install granite. This is important to consider if you are wanting to buy a bargain and fix it up.
- Can we afford the payment? or do we have enough cash to pay for this? This may sound very basic, but it is essential to work backwards from a manageable loan payment to calculate the total project budget. Its easy to just pick a number that sounds reasonable at the beginning of a project, it important that it is manageable.
- Is it cheaper to move or improve? Are there houses that have what you want for less money that your eventual cost of renovation? Maybe you just need to improve one part of your home to make a big impact on how it functions. In that case, it is likely that you can pay less by staying and improving your current home.
What are you thinking about changing? Do you love your location, but your house needs some upgrades? Do you know what you want, but are not sure how to get there?