Even with low interest rates on financing, not all renovations are good deals for homeowners looking to up the market value of their houses ahead of a sale.
Digging to put a swimming pool in the backyard, installing a heat pump, upping the insulation while re-siding exterior walls or getting more energy-efficient windows and doors are all things that probably make a house a lot more enjoyable and comfortable for the people who live there but tend to do little for resale value, say appraisers.
The same thing applies to beautiful cedar fences, elaborate landscaping, extensions to the house, including sunrooms and decks, and finished basements.
“It’s not going to be a dollar-for-dollar thing,” said Tony Woolridge, owner of Appraisal Services in St. John’s, N.L. “You enjoy them, and they give you that value but in terms of the marketplace they may not have that return.”
Costly structural repairs to foundations, electrical wiring, plumbing and the roof, including the replacement of all the shingles, typically do not add much to a home’s resale value either.
However, keeping these things in good condition can prevent a house’s value from plummeting, so they still have to be done even if only to keep the resale value from falling.
The biggest bang for the renovation buck for homeowners looking to sell a property has traditionally been work done to modernize and spruce up kitchens and bathrooms, said Woolridge.
Think bathtubs, bathroom fixtures, toilets, and vanities and kitchen cabinets.
“If I’m walking into a 30-year-old home that has functional but dated cabinetry and I replace that, that’s going to be where I’m going to get my biggest return,” said Woolridge.
Even those renovations, though, have to be tempered by common sense since an extremely lavish kitchen and bathroom in an otherwise modest home can look, well, just out of place.
“You don’t want to over-improve,” said Woolridge. “You want to stay consistent with the values in the neighbourhood. You’re not going to put in a $40,000 kitchen in a $300,000 property.”
When renovating with an eye to resale value, it can also be a good idea to stick with styles that have broad market appeal and avoid the temptation to deck the place out with a funky new style or retro look just because it has been featured in a magazine.
“If you’re going to renovate your kitchen really retro, then that’s a pretty specialized renovation and you have to find someone who likes that,” said Woolridge.
His advice? Skip the fancy interior designers and just talk to people at the hardware store.
“You only have to go as far as your flooring supplier and paint store to find out what the latest materials are,” he said.
Whatever style and materials a homeowner chooses for a renovation, Woolridge also suggests they finish what they start since a half-baked reno is almost never a good look for a house on the market.
“If you’re selling a house and the renovations are not complete, it raises all kinds of red flags,” he said. “You’ll lose – and better than dollar for dollar.”
Renovating Atlantic Canadians are in it for the long haul
Atlantic Canadians are more likely to renovate their homes than other Canadians but spend a lot less money in any given year when they do – and then, only for a little bit of work at a time.
Julie Charest, an analyst with Statistics Canada, says while some homeowners do plunk down big bucks to remake entire kitchens or bathrooms in one shot, many choose to spend less per year and spread the work out over several years.
“In the Atlantic provinces, half of the households reporting a renovation expense for their ... principal residence reported costs of less than $2,500,” she said. “This could indicate that some households complete … only part of a renovation project in a given 12-month period.”
Throughout the country, slightly more than a third of Canadian households renovated their homes in 2016, the latest year for which figures are available. By contrast, 41.7 per cent of Atlantic Canadian households coughed up coin for renovations that year.
But homeowners in Nova Scotia, Prince Edward Island, Newfoundland and Labrador and New Brunswick spent a lot less on average that year than other Canadians when it came to getting that work done. The average cost of renovations across the country was almost $8,200 in 2016. In Atlantic Canada, the comparable figure was roughly 24 per cent lower at slightly more than $6,200.
New Brunswickers spent the least of all Canadians to upgrade their homes that year, with an average expense of just under $5,100 per household undertaking renovations. Ontarians spent the most, with an average expense of almost $9,400.
Among those households that undertook renovations in 2016, Nova Scotians spent an average of slightly more than $7,000 and Islanders plunked down an average of just over $6,300. In Newfoundland and Labrador, where almost every second home saw some type of renovation in 2016, the average expense was $6,200.
Financial experts agree that the best way to pay for those renovations – for those who have the means to do so – is with cash.
“If you’ve got the money in your savings account, absolutely use it for your home renovations because you have more of a chance of making money by selling your house down the road,” said Stephanie Morrison, a mobile banking specialist with the CUA credit union.
A big plus for using cash is the speed with which it allows a homeowner to pay a contractor or, for do-it-yourselfers, buy building supplies.
“You’ll be able to get the work done more quickly than if you have to be approved by a bank,” said Morrison.
Homeowners need to weigh pros and cons of their financing options
With still-low interest rates in Canada, the return on money parked in a bank account or a guaranteed investment certificate is typically at or below the current level of inflation, meaning money placed there is losing purchasing power.
“Unless you’re willing to invest your savings into something that carries a bit of a risk, the returns for savings vehicles are very low right now,” says Stephanie Morrison, mobile banking specialist with the CUA credit union. “GICs come with a return of one- to two-per-cent.”
Credit cards can be a convenient way for many homeowners to pick up building supplies for smaller renovation jobs but come with big financing costs unless the balance is cleared off immediately.
“I wouldn’t recommend it just because of the high rates on credit cards,” said Morrison. “A credit card will normally charge 19 per cent interest.”
HOME RENOVATION LOAN
Straightforward, unsecured home renovation loans based on the applicant’s credit scores are another option to finance the cost of renos. At CUA, someone with a fairly good credit score of 650 can currently get a three-year home renovation loan at 9.5 per cent. Those with stellar credit can get rates as low as eight per cent at that credit union but anyone with a credit score under 600 can pay up to 13 per cent interest on such a loan.
It’s certainly not the cheapest source of financing for a home renovation. And it can be a bit awkward to handle as it comes with a need to report all expenses back to the credit union.
“We need all the quotes for the exact work they want to do and, if they’re working with a contractor, it has to be someone that doesn’t mind being paid after the work is done,” said Morrison.
LINE OF CREDIT
Lines of credit are easier on homeowners, both in terms of interest rates and paperwork, than a home renovation loan.
“If you have (an unsecured) line of credit, life is easier because you can pay people as you go and only pay interest on what you use,” of the line of credit, said Morrison. “The rates start at 7.35 per cent for really good credit and go up to 12.85 per cent for scores under 600.”
Anyone looking for a line of credit at CUA with a fairly good but not quite excellent credit score of 650 can currently secure this financing for 8.85 per cent interest.
Financing can also be had through many hardware stores.
“Stores like Kent Building Supplies and Rona typically offer a line of credit, so you can get all your supplies from them … and some of them do labour as well,” said Morrison.
Kent Building Supplies’ store card comes with no annual fee and no interest for six months, so it can be a good deal for short-term financing. On most items – excluding those covered by special promotions – the Kent card starts charging 29.9 per cent interest on balances still outstanding after six months, making it relatively costly financing for anyone who takes longer to pay off their credit cards.
HOME EQUITY LINE OF CREDIT
An even less expensive route to finance a home renovation is to get a home equity line of credit where the financing is secured by the value in the property. On a house appraised at $200,000, for example, a homeowner would be able to get a line of credit for 80 per cent of that value, or $160,000, minus any amount still owing on it. If there is a mortgage with $50,000 still owing on the property, that would reduce the amount available for a home equity line of credit in this example to $110,000.
“The rates are much lower,” said Morrison. “We’re looking at 4.1 per cent up to 6.6 per cent.”
A homeowner with a credit score of 650 would qualify for a home equity line of credit carrying an interest rate of 4.6 per cent at CUA, she said.
Another big plus for financing with a home equity line of credit is that it allows homeowners who may not have as good a credit rating to qualify.
“I’ve seen it for scores that are much lower than 575,” said Morrison. “Having security, changes a lot.”
GO GREEN LOAN
Currently, the lowest interest rate at CUA is for its Go Green financing for energy-efficient home renos and vehicle purchases. These come with interest rates as low as 3.99 per cent and terms of up to five years amortized over up to a decade. Go Green loans are typically used for such things as the purchase and installation of heat pumps or solar panels.