How to Avoid Losing Money on Home Renovations
Home renovations are one of the best ways to build equity in your home, however it is important to plan these renovations out carefully. Whether you are conducting home renovations solely to maximize equity, or you want to get more enjoyment out of your home while reinvesting in it, these tips will help you make smart choices when choosing what home renovations to do to avoid losing money.
Learn How to Avoid Losing Money on Home Renovations
Compare Home Prices & Features in the Neighborhood
Getting the most out of your home renovations means making your home competitive on the real estate market. The best way to accomplish this is to mimic renovations done in similar homes. When you visit neighbors or walk around the area, take note of what other homeowners have done with their home interiors and exteriors. What is similar about your home? What is different? While making this mental list, be aware of the appraisal methods used to assess property value.
Before you start your home renovation journey, make sure you know where you are starting from. Know the value of your home and the values of homes in the area. This will help to show what home improvements are most valuable and help you budget for renovations. You can get started by pricing your home online quickly and easily.
Get a Detailed Estimate of Home Renovations
Once you know what home renovations you want to make, be sure to get an accurate estimate for the project. Without knowing how much you are paying, it’s difficult to know how much equity you can expect to get out of the project. Overspending on a home remodeling project is the quickest way to reduce the equity you are working to build.
Create a Strict Budget for Home Renovations
With your home appraisal and renovation quote in hand, you can see how much the remodeling compares to the current value of your home. It’s important not to overspend here. If your home is worth $100,000 and your kitchen overhaul is going to cost $40,000 (40% of your home’s current value) that’s probably too much. A new kitchen, even one that is state-of-the-art, is unlikely to increase your home value by more than 40%. In general, a kitchen remodel should cost around 25% of your home value, and a bathroom remodel should be between 12 and 15%.
Start with Small Home Renovations & Build Up
Often, the smallest renovations yield the highest ROI. If you have old paint, floors or light fixtures, these small details can seriously detract from larger projects. Don’t tackle a new deck or bathroom remodel without first taking care of the DIY home projects that build equity. These smaller projects will build equity which you can then leverage with a home equity loan to move on to more major overhauls. Using this method will also prevent you from overextending your budget.
Choose Home Renovations That Build Value
It’s important to know that not all home renovations are created equal. Some don’t provide much in additional equity, and some can even detract from your home’s value. For example, the cost of a home office remodel can quickly add up, but won’t add much in equity since not all homeowners are looking for this type of addition. However, adding useful square footage or remodeling spaces that everyone uses, such as kitchens and bathrooms, will undoubtedly build equity. If your home has a notable architectural motif, don’t install renovations that clash with the theme, such as an ultra-modern all-glass bathroom in a classic log cabin–this can actually detract from your home by creating confusion and incongruity.
Don’t Tackle Your Entire Wish List of Home Renovations
Once you get started on home renovations, it’s easy to go too far. Remember that building equity is about balancing costs and returns, not making every overhaul on your list. Be cautious of big projects that require heavy time and money investments, like a home addition or a completely new bathroom installation. Though these projects may add comfort and convenience to your home, they’re unlikely to pay off.
Making thought-out home renovations will make your home more beautiful and functional, while also making your investment stronger. Your home is your biggest and most important asset, and building equity puts that asset to work for you. By planning and budgeting carefully, and keeping your goals set on ROI, you can make your home more beautiful and functional, while still building equity with each passing year. How do you plan for home renovations? Do you focus on the equity in your home? Tell us in the comments.