Home-style good sense
RENOVATIONS WILL REQUIRE FLEXIBLE FINANCING CHOICES
Whether you are selling your home, buying a new one or simply planning to stay put, renovations will at some point likely become a part of your financial planning.
You may decide to renovate to get your house ready to put on the market and perhaps increase the selling price. You may choose to add renovation costs to a new home purchase to make it more comfortable before you move in.
Or your plan may simply be to stay put and invest in creating the home you truly want. Whatever the case, it’s important to understand how to make the most of your renovation budget.
Renovations can be just as important to a seller or a buyer, says Scott McGillivray, television host and Canadian real estate specialist.
“If your place needs renovations, chances are [a potential buyer] will feel the same way. That could make a big difference in the selling price.”
If you’re on the fence about whether to stay and renovate or start fresh with another home, McGillivray strongly recommends taking a look at other properties to see if there is something that excites you before coming to any decisions.
“Then base your decision on what will give you the best return on investment.”
When it comes to deciding to renovate or sell, there are a lot of personal considerations that come into play, says Todd Lawrence, senior vicepresident, products and payments for CIBC in Toronto.
“You need to decide if you want to go through with the demands of managing a renovation; whether you really love the location and space you’re in; and if your house is capable of being what you want it to be.”
From a purely financial perspective, it’s important to have a clear picture of whether the renovations you invest in will be reflected in the appreciation of the home’s value, he adds.
“In other words, what elements will give you the most uplift for your investment?” Lawrence says.
That’s why it’s important to ensure your house is well maintained, McGillivray says. It can cost you dearly if you choose to ignore or postpone important renovations such as a new roof or furnace. Generally speaking the appreciated value of a repair will far outweigh costs.
“If you’re spending $2,000 a year to maintain a home, you get double the value in the selling price. If you don’t keep up, the house will go down in value.”
For example, after moisture seepage (especially after a spring thaw), the grading on your property can easily be fixed with some topsoil and sod for about $1,000, he explains.
“Not making that investment could mean a $5,000 concession on the selling price. No one knows the extent of the damage behind the walls if they notice seepage problems on inspection.”
Once your needs are sorted out, it’s much easier to manage the financial aspects. A starting point is finding out whether you have the flexibility in your current mortgage to incorporate renovation costs, or you need to negotiate a new one, McGillivray says.
“Where the money comes from will determine what you’re capable of doing. A mortgage advisor can help in sorting out what’s best for you.”
With the wide array of mortgage products out there, you need to come up with a plan that allows for easy access to funds when you need them, he adds.
“Today mortgages can be a million different things. You can use cash back or all-inone power plan mortgages so that you don’t need to panic if the roof goes or the furnace breaks down.”
When moving to a new property, he recommends looking at some sort of blended mortgage that includes additional options that will allow you to build up a line of credit as you pay down your home.
Timing is also an important discussion point when moving to a new home, Lawrence notes.
“Do you buy first or sell first? What do you do if there is a mismatch in the timing? The best thing to do is talk to an advisor about your options around that. A lot of existing mortgages can be ported to a new home for example. Or you may need bridge financing. These are all important things you need to talk about before making a decision.”