Renos, Refinance, and Resale Value

With Spring around the corner and rates still at near-record lows, many Canadians are gearing up to tear down, rebuild, and renovate all or part of their homes. From basements to bathrooms, this is the time of year when contractors’ phones start to ring off the hook as homeowners (or home buyers) take a long, hard look at what needs to be done.

Before you embark on your renovation journey, we thought we’d bring up a few things to consider on the financial side of the equation…

First off – start with a budget and stick to it. Never start ripping up walls without knowing what you have available to spend, and what you can do with those resources. Get multiple contractor estimates as a first step for major renovations; for minor work, take the time to plan it out and then find out how much materials will cost (it is amazing what you can save by shopping around). Make sure you leave some resources (credit or savings) available for contingencies – 20% of estimated costs is a good start.

(Note – if you are looking to buy a new property and renovate right away, read up on your options HERE)

Second: prioritize the work that needs to be done. If you are renovating to improve your quality of life, try to determine which work needs to get done first. You likely have a limited amount of cash/credit to spend, so set it aside in chunks (and remember there’s always next year).

Third: If you are updating your home in order to put it on the market, consider what your renovation investment could mean to the potential resale value of your home. There is a neat website provided by the Appraisal Institute of Canada that can give you a sense of resale impact. Simply follow the guide, punch in how much you’re thinking of spending, and the program will give you a sense of We have a few issues with the program – it doesn’t take into consideration interest costs required to finance the work, depreciation of the work between when it’s done and when you sell, location of the home, or other factors – but it will give you some additional insight into resale value BEFORE you start knocking down walls (and paying for it). You can find the website HERE.

Fourth: if you are planning on undergoing major renovations, look at your home finance picture BEFORE signing off on any contracts. There may be financing options (such as Purchase Plus Improvements financing or Line of Credit equity take-out) that will help you keep your savings without incurring dramatic interest costs. Putting your equity to work in order to get a better quality of life out of your home can be a great justification for renovating, but be mindful of the fact that, should you suddenly want/need to sell, all that equity may no longer be available to you for a downpayment, moving expenses, and so on.

Just like completing the work itself, paying for your renovations is all about knowing what needs to be done and how to do it. Speak to a qualified home finance specialist early in the planning process in order to ensure that your renovations are worked into your larger financial plan – and not the other way around.

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