Home improvements are not an investment.  Even at the real estate market’s peak, most remodeling projects didn’t pay for themselves.  You should view home renovations as consumption spending – not investing – and ideally you should pay cash for consumption.

This is not to say you should never upgrade your house.  Roofs, appliances, flooring and other surfaces wear out over time.  You might want to improve an inefficient layout or tear out a previous owner’s bad taste.  It might also be worthwhile to remodel rather than sell and buy another home, especially if you like the neighbourhood.   Selling expenses, moving costs and real estate commissions can really eat into your house’s value.

Most home renovation projects are unlikely to recoup more than two-thirds of their costs and most will return much less.  Be careful about tapping into your home equity.  It makes no sense to finance your project unless you plan to live in the house for many years.

If you do finance your upgrades, make sure they really will add some value.

  • Beware of home renovations that make your house bigger or fancier than others in your neighbourhood.
  • Be careful about adding in-ground pools.  The cost, hassle and drowning risk for small children can really turn off potential buyers.
  • Be a little more conservative in your choices rather than indulging your bold or wild personal taste.  (I used to have a raised dance floor in my basement!)

Some less expensive possibilities for home renovations include:

  • Refurbishing instead of buying new, e.g. refacing kitchen cabinets, refinishing hardwood and reglazing tubs and sinks.
  • Re-think your rooms.  Can an unused dining room become a home office?
  • Spruce up your landscaping by trimming bushes and hedges and planting a few low maintenance flowers.
  • Freshen up with paint, and
  • Clean and declutter.

You will recoup the most of the cost of your project if you sell within a year of finishing the work.  Home renovations start to get dated as soon as you finish them.  Newer and trendier colours, styles and finishes are constantly being introduced.  In other words, today’s stainless steel can be tomorrow’s harvest gold.

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