LOVE IT OR LIST IT?
Making a decision on whether to renovate or move is one that many people struggle with. I often try to break it down to some simple facts; do you intend on staying in your current home for 5 years or more? Does the size of the home meet your current and near-future family needs?
If the answer to either of these is “no,” then spend as little as you can on making your home look good for resale. If the home will need substantial re-structuring to meet your current and future needs, consider a lateral move within the neighbourhood to a floor plan with more potential for improvement. Look at purchasing a house on the next street over, one that needs a bit of work but is among homes of higher value. This home may have a higher ceiling for appreciation than yours will, and the money you’re hoping to spend on renovations will be better invested as opposed to spending it on your current home.
If the answers are “yes” and your decision is to stay, then you have to ensure that it makes financial sense to invest money into renovations.
Here are the two scenarios:
If you’re planning on moving within 4 to 5 years, do only cosmetic improvements:
- Always consult a real estate agent to understand the current value of your home. Research updated data on property values in your neighbourhood. Look around and see what is available in the range of value of your current home.
- Ask the agent what increase in value you would obtain based on the cosmetic improvements you are considering. If doing $30,000 of cosmetic improvements can only yield approximately $30,000 more in resale value, it may not be worth your while unless it could facilitate a very quick sale of the property or provide the potential for competing offers.
- Stay within that spread on your budget and don’t spend any more.
- Consider the added costs of carrying your house if you were to wait several months for the sale of the property. Sometimes it’s better to sell quickly and move into a house with more potential for capital growth.
- Limit your work to painting, backsplash, new countertop, re-organizing, clean up, minor landscape improvements and general repairs.
If you’re planning on staying for longer:
- Always consult a real estate agent to understand the current value of your home. Know the market.
- Ask the agent what increase in value you would have based on the renovations you are considering. If your investment of $100,000 is going to yield an increase in market value of $80,000 – It’s easy to justify an added expense of $20,000 for personal enjoyment. Amortize that over the minimum of 5 years that you will be there and that would mean that you’re loving your house and your life for an added $5,000 per year. Who knows – property values may increase enough that this won’t even be an issue.
- Take all emotions out of the equation and treat this as a business and financial decision.
- Don’t over-improve your home for the neighbourhood. Putting a $250,000 kitchen in a $450,000 home is not a sensible decision.
- Consider all pros and cons of your current house and list the items that need to change to make this your perfect home.
- If your living spaces are too small for your needs, spending money on making them look good will not resolve your core issues – in which case, consider the next point:
- Consider a lateral move in the same neighbourhood but onto a street that can offer a home with better living spaces, more opportunity for improvement and more opportunity for capital growth – meaning, buy a house on a street close-by that needs work but is amongst homes of higher value. Perhaps spending the money on this new home will yield a fantastic result as opposed to a good result. This new home may also grow more in appreciation than your current one will over the term that you stay there.
Knowing your surrounding real estate market is critical. Looking around in the market is free and offers two benefits; 1) you get a clear understanding of the value of what you currently own, and 2) – it enables you to make your investment decisions on facts rather than your emotions.