To avoid reno pitfalls, plan ahead
A combination of steeply rising prices and lack of supply in many markets is forcing a growing number of Canadians who need more living space to consider renovating their existing homes rather than selling and buying a bigger house.
But experts warn that consumers should do their homework and not be lulled into believing that renovations always turn out as successfully as they are portrayed in home reno TV shows.
Nicole Wells, vice-president, home equity financing at RBC, says it’s important to prioritize the work that needs to be done.
“Separate the must-haves from the nice-to-haves,” she advises. “There’s no point in putting in a new bathroom when the roof is leaking if you can’t afford to do both.”
Ms. Wells says homeowners considering a major renovation have a whole range of experts available to them, from contractors and realtors to financial advisers and mortgage specialists.
“Take advantage of their expertise and guidance, and make sure you have a clear understanding of all the implications of undertaking a reno, from the time it will take to the costs,” she adds.
The reasons for renovating usually determine the scope and cost of the work that needs to be done. If you plan to stay for several years, the need for living space may outweigh adding resale value.
But if your aim is to boost your home’s resale value, the focus should be on work that offers the best potential payback. You don’t want to put money into renovations that buyers won’t pay for.
A good rule of thumb is to check out other houses in your neighbourhood and try to match their amenities. A realtor could help with this.
Choosing the right financing option for the renovation is equally important. While using savings that cover the costs is probably the best way to go, it’s not always possible. Borrowing, either through a line of credit or a mortgage, would be the next option.
A line of credit can be repaid at any time without early payment penalties, but the monthly repayment costs might be higher than a mortgage payment, which can be spread out over a longer period to make it more affordable on a monthly basis. However, there could be penalties for early repayment and the overall interest costs could be higher.
“Deciding on how to finance your reno needs careful consideration,” says Ms. Wells. “It should be tied in to your scenario planning, which would include why you want to renovate in the first place, how much you want to spend, and how you would cope if mortgage rates went up.”
Keeping costs under control once the renovation begins requires a close working relationship with the contractor.
“You and your contractor need to be on the same page; there should be no misunderstanding about what you want and what the contractor thinks you want. Keep careful track of what work is being done, and talk to your contractor as often as possible,” she says.
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