Your home is your castle. It is also a tax sheltered investment for your future. As you pay down your mortgage, you increase the equity you have in your house (the difference between what the house is worth and what you owe). As you renovate and make improvements, you can increase what your house is worth. Some renovations offer a larger return than others. And improperly executed “improvements” may actually hurt the value of your house.
Don’t over-improve
The value of a house is determined not just by its features and the quality of building materials used, but also by its size, location and the value of other comparable homes in the area. A $50,000 dream kitchen will not offer the same return on investment in two bungalows if one is located on the water and the other is located in a working class neighborhood. Likewise, building a second story addition in a neighborhood of single story houses may not be a wise investment either. You would be better off to move to a house that better meets your needs.
You may have your reasons for over-improving your house. It may be a house that has been in your family for generations. You may have special ties to the neighborhood. You may simply like the house, but desire it to be more upscale. But investing $50,000 in renovations will not necessarily raise the value of your house by $50,000 and you need to be aware of the maximum potential value of your house before you dive in. A real estate appraiser or a real estate agent can tell you whether or not your planned investment is wise, and how much return you can expect to see.
Kitchens and bathrooms
Any real estate agent will tell you that renovating a kitchen or bathroom will offer the biggest bang for your buck in terms of increasing the value of your house. Since your home is your castle, let’s start with the throne room:
- Adding a bathroom will usually add value. But adding a bathroom in a bad location, such as next to the kitchen, or in a cramped space under the stairs, or right next to the family room where company could potentially hear your business could hurt the value of your home.
- The main bathroom should have a minimum of a tub and shower combination. A separate stand-alone shower is even better, if there is room for it, but no tub could be a deal-breaker. Invest in a better shower head that fits in with the latest trend, such as the rain-style head.
- Changing the faucets is another easy way to create a new look for minimal investment.
- Those avocado fixtures from the seventies, or the dark blue or dark burgundy fixtures from the eighties have become outdated. Replace them with white fixtures, which have never gone out of style.
- Carpet has no place in a bathroom. The squishy-squishy is bad enough around a tub, but is absolutely disgusting around a toilet.
A kitchen should have an eating area– an informal eating space as opposed to a formal dining room. A formal dining room has its place, but the more informal area is the one that will get the most use. An inexpensive way to update the look of a kitchen is to replace the cabinet hardware.
Flooring
Laminate floors are a do-it-yourselfer’s dream. They are less expensive than hardwood floors and are easy to install. While they have vastly improved in appearance and quality in recent years, they are still not the real thing. And there are purists who will insist that the real thing is always better. Laminate floors have no place in period or upscale homes.
Simply put, laminate floors are not an alternative to wood, they are an alternative to carpet.
Period Features
Period features, such as wooden floors, sash windows, stained glass, crown moldings, and fireplaces should be restored. The real thing is always better than imitation. Fake period features, especially ones that do not fit in with the architectural style of the house, are to be avoided.
Storage
A house can never have too much storage, so find creative ways to increase the amount of storage you have.
Central Heating and Cooling
An investment in a furnace and/or central air conditioner will pay off, not only in terms of your own comfort, but in making your house more salable in the future. Investing in a high efficiency system will decrease your monthly utility costs resulting in savings that can pay for the system over its lifetime.
Textured finishes
Ah, the beloved “popcorn” ceiling. Textured finishes are a great way to hide imperfections, That strength is also their weakness– potential buyers know that the texture is likely hiding something. Heavily textured walls or ceilings can make a room feel much smaller than it is. And textures can be difficult to match, in the event that a repair has to be done in the future. Furthermore, they are can be very messy and expensive to remove, which can be a turn-off for a potential buyer. That is not to say that textures do not have their place, but like everything else, moderation is key. Don’t overdo it, and don’t mix too many patterns.
Windows
Replacement windows are an affordable way to increase the energy efficiency of a house– a valid selling point. However, white vinyl windows may not fit in with the rest of the neighborhood, and look out of place on period homes. Custom colors or opting for a more upscale material such as fiberglass should be considered in these cases.
Increasing living space
The most cost effective way to add square footage to a house is to finish the attic (loft) or the basement. An additional bedroom will add more value than a play room or storage room, so closet space is key. And when it comes time to sell, stage it as a bedroom.
A sun room (or conservatory) brings the outdoors in, and can be a relaxing tranquil space or a great space for entertaining. However, the style should fit in with the overall architectural style of the house and should not sacrifice the yard. It should bring the outdoors in, not replace the outdoors.
An addition is yet another way to increase the square footage of a house. Again, it should fit the architecture of the house and fit in with the other homes in the neighborhood. Having no addition is preferable to one that is poorly built or unattractive.
Structure
Let’s face it, structure just isn’t sexy. But without proper structure, investing big bucks in the very best finishes is a waste of money. Potential buyers will steer clear of a house that has issues with moisture or water infiltration. If there is movement in the foundation, it needs to be addressed. Removal of walls to enlarge rooms or create open concept living space must be done properly so the structure of the house is not compromised. Structural repairs can be expensive, depending on the amount of surgery required, but must take first priority.
Outdoor space
A pool should only take up a quarter of the yard. Maintenance and upkeep costs and potential safety hazards can make pools unappealing to some buyers, especially in climates where they are only used for a few months out of year. A pool is a more desirable feature in climates that are warm most of the year (California, Florida).
A yard should be low maintenance. Most potential buyers don’t want to spend their weekends taking care of the yard, but rather want to spend their time relaxing in it. Outdoor dining is an attractive feature– think patio furniture and barbecue.
The front yard is a huge factor in curb appeal. Again, strive for low maintenance and splashes of color. And don’t allow either yard to become overgrown.
To DIY or not DIY
Tackling home improvement projects yourself can save you a lot of money, and done right, these projects can add value to the house. However, bad DIY and poor workmanship will send most buyers running to the hills. If you are going to do it yourself, do it right. Or hire someone who can.
Your house as an investment?
A real estate agent once explained to me why real estate was a better investment than RRSPs or IRAs. It was simple: climb the property ladder during your working life and downsize after retirement. Let’s take a closer look:
You must remember that over the life of a 25 year mortgage, you are paying interest to the bank. On a $250,000 loan at 5% interest, you will pay the bank more than $188,000 in interest over the course of 25 years. Tack on the recommended 1% per year for maintenance (over $60,000 in 25 years) and your house will have to double in value in order for you to break even. That doesn’t exactly fit the definition of a “good investment.”
We know from the recession of 2008-9 that property values can fall. While people got rich riding real estate bubbles in the past, you cannot expect to have that same fortune in the future. So let’s remove from the equation the assumption that your house will increase in value.
However, even if property values fall, downsizing still makes sense for putting money back in your pocket after your family has left the nest, but it shouldn’t be considered as an alternative to other retirement savings strategies.
In the interest of full disclosure, many of the tips in this article were featured on a pair of television shows presented by Colin McAllister and Justin Ryan that aired sometime around 2010, give or take 3 years. Unfortunately I cannot find a record of those shows in either of their IMDB entries. One of the shows dealt with ways to increase the value of your house and the other dealt with ways to decrease the value of your house.