RENOVATING AN ALTERNATIVE WORTH CONSIDERING
Many long-time homeowners eventually ask themselves if the time has come to renovate or to move.
The choice is not just about numbers, says Barry Gollom, vice-president, secured lending and product policy at CIBC. “There are many things to consider from both a financial and personal perspective. There is so much that goes into the decision, such as your lifestyle, stage in life, whether your family is growing, your retirement goals, your salary expectations, and more.”
As with any big decision, there are upsides and downsides. Renovations can create an overwhelming amount of disruption in the home, Gollom says. “That’s something that is often understated, especially if you have children. If it’s a significant renovation, you may need to move out for a time and in-currenta land other costs.”
On the plus side, a renovation lets you maintain ties to your neighbourhood and have the potential to increase the value of a home when it comes time to sell.
Upgrading to a new home brings its own challenges. Buyers often underestimate the costs involved, ranging from real estate fees, insurance premiums and land transfer tax to home inspections, moving fees and utility charges.
Moving can also mean a significant disruption to family life. For many, it could entail leaving a neighbourhood they love. “Is it worth moving to a larger home if your kids have to leave their friends and school?” Gollom asks.
Sometimes, market forces make the decision for you.
Homeowners today are increasingly choosing to renovate rather than move, says Scott McGillivray, host of HGTV’s Income Property. “Across Canada, there has been a huge jump in the percentage of people opting to renovate their homes versus selling them. It’s a big deal – not because people necessarily want to stay in their homes. They simply can’t afford to move or can’t find a place to live. Instead, they’re looking for creative solutions to add more space.”
He cautions that when considering renovations, there are improvements that increase value considerably and others that will never pay for themselves. “You shouldn’t over-improve for the neighbourhood. For example, you don’t want to build a $150,000 custom kitchen in a $200,000 home.You have to be realistic about your needs and where money is best spent.”
The biggest value boosts come from projects such as kitchen and bathroom renovations, finished basements and adding square footage in your outdoor living space, such as patios and decks, he says. “A finished basement, for example, can increase space in your home by one-third. Even smaller items like flooring, fixtures, hard ware and counter tops give a good return on investment. Adding an office or a swimming pool, however, will not get you the return on investment you’re looking for.”
For the mos tpart, your dollars can go further if you renovate the home you’re in, McGillivray states. “A $100,000 renovation on a $500,000 home might get you what you need. But adding $100,000 to buy the house you like may not be enough. To buy what you want could easily take twice as much or more.”
A good way to gauge how much to spend is to check with your financial institution on the equity available to finance a renovation. “There is only a certain percentage of equity available, based on the value of your home,” McGillivray says. “It’s not worth spending any more than your limit.”
Depending on the extent of a renovation, it might make sense to leverage an unsecured line of credit or a loan. A home equity line of credit is a better option for a larger renovation, Gollom says. “There are even hybrid products that combine a line of credit and mortgage that you can draw down on as you need it and you only pay interest on what you borrow. It’s very efficient and easy to access.”
Gollom says when deciding whether to buy or renovate, the first and best thing to do is surround yourself with experts. “It’s so important to have that conversation with an adviser who can help you in the decision-making process.”
Ultimately, the choice comes down to the question of quality of life, which includes factors that are both personal and financial, he says. “That should always be your most important consideration.”