3 tips to help you renovate your home and minimize debt risk

December 10, 2014

Renovations done right can boost a home's value, but done wrong could lead to financial ruin. Here are three tips to help you renovate your home and minimize debt risk.
There are always so many small jobs to be done when you own a home. But when you decide to undertake major work to increase the resale value of your house, you have to be sure the renovations won’t be a debt risk. You want to be able to renovate without losing your shirt.

Tip #1: Puttogethera solid plan

If you’re planning a major project, don’t improvise, or you may end up with unexpected expenses. Assess your finances with a professional and set your budget. Most importantly, stick to it. And because you never know what lies behind a wall or under a floor, you should set aside a contingency fund worth at least 10 per cent of your budget.

  • Make a list of the improvements you’re planning to make to your home and determine the priorities and the work that’s required.
  • Request bids from several contractors, and in all cases, make sure to comply with building codes, whatever the cost. Rely on quality rather than quantity.

Tip #2: Secure proper financing

Depending on the degree of work to be done, there are several financing options available.

  • If you undertake small jobs, you could assume the costs from your personal assets. You could use your credit card or your personal line of credit for certain purchases, provided the repayment is done quickly to avoid the high interest rates on any outstanding balances.
  • Other sources of funding are available for major projects, such as personal loans and mortgage refinancing, which allow you to spread the repayment over several months or years.
  • In some cases, you may need to allow for notary fees for substantial loans. Before making any decisions and going ahead with your plans, take the time to consult a financial or credit professional.

Tip #3: Renovate for the biggest return

Properly maintaining your property and keeping it up-to-date requires time and money. Certain renovations allow you to recover the amount you invested when you sell your property, but this is not always the case. According to the Appraisal Institute of Canada, renovations that have a significant impact on the resale value of your home include:

  • The kitchen
  • The bathroom
  • Interior and exterior painting
  • Roof repairs

Other renovations can provide an average yield, such as:

  • Replacing the heating system
  • Finishing the basement
  • Replacing doors and windows
  • Expansions
  • The addition of a good quality fence, paved driveway or landscaping

Some work would ultimately have little or no impact on the resale value of the property, such as:

  • The addition of an in-ground pool
  • The installation of a skylight

The most beautiful property on the block

When assessing the suitability of undertaking major renovations, consider the average value of your neighbourhood properties, especially those on your street. It’s always better to sell a smaller property that’s surrounded by beautiful homes than it is to put a property on the market that’s too luxurious for the neighbourhood. Otherwise, all the money invested in home renovations could become a debt risk if your home doesn’t sell.

3 tips to help you renovate your home and minimize debt risk
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