Renovations that improve the function of your home should be at the top of your list.
If you can afford to, renovating your home is a win-win. Not only will it instantly add value to your property, but you’ll get to enjoy the updates you’ve made until you decide to move out.
The only catch: many Canadians don’t have the cash on hand to make all the upgrades they’d like, which most Canadians admit is around $25,000. So what should you do if you want to invest in your home but don’t have tens of thousands to spare? Prioritize areas of your home that will give you the biggest bang for your buck.
Not all renovations are created equal
The key is identifying what upgrades will have the most significant payoff in your home. Think about this from a buyer’s perspective:
- What changes could make your home more or as attractive as others in the market?
- What eyesores could deter a prospective buyer from purchasing my home?
- How can I enhance the most common areas of my home?
Once you’ve reflected on that, research how much your upgrades will cost. If you plan to do them yourself, include the cost of any tools or equipment you’ll need to buy in the total. If you plan to enlist the help of a professional, you might need to book a few in-person visits for these estimates.
Next, research how much homes with comparable upgrades are going for now to estimate how much of a return you could receive when you sell. Spending a lot of money on your renovations does not guarantee a higher return. Factor in the quality of the work performed (DIY or professional), economic trends, and whether it’s a buyer’s or seller’s market at the time of your estimate.
If the cost of your renovations outweighs the profit you might make in the end, then it’s not a good financial investment.
Types of renovations
Any renovations that improve the function of your home should be at the top of your list. Your heater doesn’t work? Get it fixed so your home can be considered fully functional. Is your basement unfinished? Focus on improving that before spending your money on any cosmetic changes. Functional upgrades are guaranteed to add value to your home and mitigate against losing value in the market because elements of your home need significant work.
Improving the layout of your home could make a huge impact. Open-concept is still favoured over other layout types, so you might want to consider tearing down any walls that separate your living areas from other spaces like the kitchen, dining room, or entryway. The more living areas, the better. Make sure knocking these walls down won’t impact the structural integrity of your home. Other structural changes can include adding a bathroom to your basement and an island in your kitchen.
Some renovations are tried-and-true in producing good returns on investment. These include remodeling dated kitchens and bathrooms, swapping carpet for flooring, and installing a wooden deck in the backyard. Pools are also well-liked but the installation and seasonal maintenance costs might be too expensive to pay off in the long run. Considering what features other homes in the neighborhood have over your home is a good strategy to help determine what renovations you should prioritize first.
The top renovations to increase your home value are…
1. Create more living space
Estimated Return on Investment: 100% or more
Creating more space to live, work, and play is one of the best ways to increase the value of your property. The pandemic has led many Canadians to change their habits and spend more time indoors, so any renovations that would enhance home life are highly recommended. An example would be creating a second living area in your home, or knocking down walls around the main living area (if the structure of your home permits).
2. Out with carpet, in with flooring
Estimated Return on Investment: 100% or more
Carpets may have been the design standard in the ‘50s but not anymore. Hardwood, laminate, or vinyl flooring is much more attractive today because of its sleek look and how easy it is to maintain. Flooring is also better for your air quality over carpets. If you’re looking to save some cash, you can install your own floors but you’ll need to invest in the necessary equipment and have some patience.
3. Improve your curb appeal
Estimated Return on Investment: 90% or more
Want your home to look more expensive? Replace any visible vinyl on the outside of your home with stone or brick. Too costly? Invest in a new garage door to increase your curb appeal. If you don’t have the cash for that either, some weather-resistant sticker decals could do the trick.
4. Remodel your kitchen or bathroom
Average Return on Investment: 75% or more
Kitchens have come a long way from being an area to simply store and prepare food. They are now a place to host, entertain, and serve food. If your kitchen could use a facelift, getting stainless steel appliances, adding a classic backsplash, and new cabinets will make all the difference. The cost might be daunting up front, but you’ll recoup most, if not all, of what you put in, depending on your finishes and the market.
5. Finish your basement
Estimated Return on Investment: 75% or more
Remember #1? A finished basement doesn’t only create more living space, but eliminates the eyesore of an unfinished one. This is why the return on investment is so high with this renovation, especially if your basement can easily be turned into a rental unit for some extra cash.
What if you want to start renovating but don’t have the cash?
If you’d like to get the ball rolling on your home renovations, but are short on savings, depending on the amount of equity you have in your home, you could consider refinancing or opening up a Home Equity Line of Credit (HELOC) to pull some of that cash out.
When it comes to a HELOC, you’re generally borrowing from your equity. Generally when it comes to getting funds for home renovations, this is the preferred choice amongst Canadians. As long as you have at least $100,000 in equity in your home, you can access this line of credit to borrow large amounts of money. It’s important to note, though, that you’ll need to pay off this loan in 10 to 15 years.
On the other hand, if you’re looking to do a cash-out refinance, you’ll need to negotiate the terms of your mortgage, to secure the loan–which means you’ll need to get approved for your mortgage all over again.
When it comes to which is right for you, consider your equity and financial situation. However, when it comes to refinancing you can pay it off over the duration of your loan–which could be mean over the next 30 years, giving you a bit more time to pay it all back.
However, it might be helpful to speak to a mortgage advisor to help you weigh your options. Get in touch by applying today.