The Financing Perspective: Money Matters
You want to do some renovations on your home. The first step? Get the money. There are a few ways to finance renovations in your home.
“Exploring your financing options early on in the planning process can help you start enjoying any improvements sooner, while giving your investment more time to grow,” suggests Craig Bannon, Metro Halifax & Builder Sales Manager, Atlantic Canada, with the Royal Bank of Canada. Small renovations could be covered with savings or credit card or with cash. According to Bannon, homeowners can save and pay for the work with cash by creating a budget and saving a bit of money each month. Larger projects, however, usually require financing and therefore speaking with a bank.
What’s the biggest financial mistake homeowners make with a renovation project? “Not getting pre-approved to determine how much they can comfortably afford to borrow,” Bannon states. Most banks offer various products that can help finance a renovation project. The Royal Bank, for example, offers the RBC Homeline Plan, a flexible borrowing solution that offers homeowners an overall credit limit of up to 80 per cent of the value of the home. Funds can be accessed by online banking, writing a cheque or making a withdrawl from an ATM. This product also offers the lower interest rates of secured credit.
Homeowners can also refinance their home. Bannon notes the advantage of this option is that it allows a homeowner to access the funds they need for renovations up front in one lump sum, even if you have already paid off your mortgage. With refinancing (which is subject to credit approval) homeowners can borrow up to a maximum of 80 per cent of the current value of their home. Customers can choose from a number of amortization plans, have flexible repayment options, including one regular mortgage payment. A mortgage add-on or a built-in add-on can be used if the homeowner has a mortgage with the Royal Bank, which has been registered since 1996. Funds are added to your existing mortgage up to the original amount of the mortgage. With the add-on option, the existing mortgage rate is blended with the current rate for the remainder of the mortgage term. Monthly payments are adjusted to reflect the new principal and mortgage.
A line of credit is also a great way to finance a renovation project. This product offers an approved credit amount of $5000 or more, the convenience of credit any time (writing a cheque, transferring or with-drawing funds), and flexible repayment terms that allow a homeowner to pay back what they want.
Personal loans are great if you need all of the renovation funds up front. The loan can be paid back in one to five years with a restructured payment plan that suits your budget.
Whatever the financing option, there are many on the market to suit any home-owner’s needs.
The Realtor’s Perspective: Show and Sell
You have a house to list on the market. But it needs work. You have the money, but where do you spend it to get the best price for your home?
“Some renovations can be done without spending a lot of money while others require more of an investment,” says Jerry Murphy, of Keller Williams Realty. The less expensive renovations are painting, cleaning and removing old flooring and carpeting.
There are plenty of larger projects a home-owner can do before putting their house on the market, but not all of them are appropriate upgrades when selling a house. Murphy admits he’s seen clients spend money on renovations that will have little impact on the investment or equity in the home. One of his clients spent $20,000 to pave a driveway, an upgrade that the seller wouldn’t likely get back in the final price. Based on his experience, there are two rooms that will almost make or break a sale. Those rooms: the kitchen and bathroom.
Murphy suggests when updating a kitchen or bathroom for a sale, it’s important that homeowners not let their own personal tastes be reflected in the décor. Use neutral colours in paint and countertops. That way a prospective buyer can visualize how the space will look when they move in. Décor or updates that are too ornate or busy can be distracting to buyers. Sticking to the basics when selling a home is a theory in real estate known as “show and sell.”
“Most people can’t see past what they see in front of them,” notes Murphy, who’s been working in real estate for 30 years. “Keep it simple. Don’t create another job that the buyer will have to do when they move in.”
In terms of the investment and how it will be reflected in the price potential buyers offer, Murphy says that while there are many variables, ultimately whatever a homeowner invests will get at least that amount of investment back.
In terms of budgets, Murphy advises his clients that what you spend depends really on what type of house you are selling. A higher-end house, for example, will sell quicker with a kitchen and/or bathroom that have been given a higher-end upgrade.
For those looking to buy a house, especially a fixer-upper that will often need extensive renovations, the financing for that work can be calculated into the mortgage. Those sellers who don’t want to do the renovations before they place the house on the market, should make sure the listed price reflects the work that needs to be done. Still, Murphy acknowledges that most buyers are looking for a turnkey home, and it’s rare for a buyer to take on large projects as soon as they get the key.
But in short, it’s best to talk to a realtor about where your money will be best spent on renovations. In most cases, upgrades are a necessary part of the selling process.
“If you want to sell the house and get the money for it, you will have to do some work,” Murphy cautions. “But spend your money wisely. That’s why it’s important to have someone advising you.”
The Builder’s Perspective: A Big Gain for A Little Pain
Keith McMaster is an owner and operator with Shirebook Developments. Part of his business involves renovating homes, and according to him, more people are renovating now than ever before.
“People are established in their neighbourhood and they’ve built equity into a home. Homeowners can realize more value by renovating.”
And in the age of the Internet and home design shows, people are more educated now than ever before. That makes his job easier, because in most cases clients will come to him with a great concept and samples in place.
Still, consulting with the experts is always recommended. For larger renovations, including those on higher-end homes, McMaster recommends homeowners consult with a designer, who can help them visualize what the final product will be. This will also make the job easier for renovators because a designer will give them a plan.
“If you work with a renovator or a designer, you shouldn’t have extra costs, unless you run into surprises.” He says it’s less likely that a renovator will be working on a home and find pipes, plumbing or other fixtures in areas they wouldn’t expect.
The largest renovations are by far the kitchen and bathrooms. McMaster believes that’s because these rooms offer home-owners a “wow” factor unlike an upgrade in any other room, plus they can gain more value than the actual cost of the renovation.
As for price, McMaster estimates a typical renovation for a bathroom will cost from $10,000 to $20,000 while a kitchen renovation can be anywhere from $20,000 to $50,000. However, this all depends on the particular style of the homeowner and what features will be used in each room. Still, he admits most people have done their research and have a good idea of what their budget is for a room.
One part of the home that can be renovated at little cost, but with huge impact is a basement. McMaster notes that upgrading an unfinished basement is a great investment in a home, not only for those homeowners who are staying put, but also for those looking to sell. Many homeowners now are turning unfinished basements into home theatres or rec rooms. Upgrades typically involve finishing the walls, adding insulation and completing the electrical.
Another upgrade homeowners should consider, especially if they own an older home, is an energy audit. McMaster says this is one of the most cost-effective upgrade a homeowner can do. An energy audit can find out the best ways to spend money on making your home more energy efficient. The audit itself is usually inexpensive. And of course, homeowners who complete these upgrades often quality for rebates. Some of those best ways to upgrade your home and make it more energy
efficient are replacing the windows, getting a new furnace or adding insulation.
Renovations can still be a frightening prospect for many homeowners, but McMaster has advice for those who think renovations are too much to handle. Do your homework, get pictures and magazines, watch home décor shows and get a good idea on what you want.
“It can be quite painless. Renovations don’t have to be a big burden. Properly plan it, have a good idea of what you and the work will be done in a few weeks.”
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Peter Briand with Econo Renovations has worked on 40 kitchen and bathroom renovations over the past year. While he works on other rooms, too, kitchens and bathrooms are the biggest part of his business now. And there’s a good reason for that.
“Kitchens and bathrooms are the most widely used rooms in a house. Kitchens are the centre of the house. That’s where everyone gathers for meals and entertainment. Bathrooms are all about accessibility. People want a decent shower and more,” Briand states. “When someone sees a nice kitchen and bathroom they know what to expect in the rest of the house.”
Briand estimates that with a bathroom renovation, homeowners should expect to pay around $8000 to $15,000. That can add a significant resale value to a house, ranging from about an extra $5000 for a three-piece bathroom to an extra $8000 for a four-piece. Now, the trend in bathrooms is making them into mini spas with bigger showers and lavish tiles. He has had many clients who wanted to include a laundry room in their bathroom renovation. Homeowners in older homes, who don’t want to leave, often change a bedroom into a second bathroom.
For kitchens, Briand estimates that $15,000 to $25,000 will cover the basics, but homeowner can expect to spend up to $40,000. Older homes, for example, often cost more because other features in the kitchen, such as walls, may need to be upgraded as well.
Where shouldn’t a homeowner spend renovation money if just looking to increase value? According to Briand, swimming pools, hot tubs and decks aren’t the best way to spend a renovation budget and in most cases, these changes don’t make a
difference to the resale value of a home.
He also suggests homeowners invest in energy-efficient upgrades, especially in older homes. These sorts of upgrades should be priority number one.
While homeowners are far more educated about what they want in a renovation, thanks to home renovation shows, Briand says they often don’t understand the time actually involved. Real-life renovations aren’t subject to editing and can’t be done in the time they seem to take on television. He does admit the shows have done wonders to educate homeowners about trends, products and contractors, but still homeowners have little concept of the time involved in a typical renovation job. Many homeowners take on too much renovation work on their home, convinced that since it’s done on TV, they can do it, too.
“People get themselves into trouble sometimes when they try to do these things,” Briand warns.
One final piece of advice he offers? Keep your pets in another room, for the safety of the contractor working on the renovation, and the pet, too.