Anyone working from home during the pandemic has likely become very aware of the numerous imperfections in their home, and the urge to remodel, fix, furnish, and generally botch is absolutely real.
The problem is that the timing is not good as the prices of building materials are up to two to three times what they were a year ago. Instead of hiring someone to set up a second office, we should instead reformulate our decision to remodel at this very moment.
But first true confession: I want to remodel so badly now. The general harm the kids are doing to our home from an entire Covid-induced spring and summer at any one time is real. My little ones have figured out how to skillfully and patiently peel the “leather” off our living room chairs. Our “white” couch is no longer this color, there is a mysterious hole in the wall behind the “timeout chair”. and we handed over the 4 year old’s coffee table as a color table in a desperate attempt to entertain her as we navigated the virtual school for her big brothers. And folks, this is just the living room.
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Since we took up a new hobby called “cooking” during the pandemic, I was convinced that our oven with an older model did not cook to the right temperature. After a few weeks of theory (aka nagging) that we needed a new oven, my husband bought a small thermometer to test the cooking temperature. I’m sad to say that it definitely proved that the cooking problem wasn’t the oven.
I wrote about the importance of a savings account called a home repair reserve to accompany a home purchase. We have one of these and set aside 1% of the value of our home every year. More than once this year I thought longingly about reusing this reserve for the renovation, but we have very clear parameters for this money. It is used to fix or repair structural or functional problems in our house. For fun things like fancy kitchen cabinets or a definitely white couch, we’d have to open a new savings account for remodeling and furniture.
Aside from dramatically higher prices for building materials, why shouldn’t we redesign now anyway? It’s been a tough year. Don’t we deserve it? Sure, we didn’t save the money to do it, but we could develop our own home equity. After all, this is our forever home. We could increase its value and in the meantime enjoy our improvements. Modification would then be an investment. Win win!
Oh oh, there is this lizard brain that is fighting dirty again with its tactic of using my love language “investment” against me. Fortunately, I have a way to fight back and that’s called math.
The rule here is whether a renovation or a conversion should be viewed as an investment. Find out how much you will pay and how much money you will make if you sell the house.
When I was carrying out this concept from my Save10 co-founder Stephanie Matthews, contractors came to her home to discuss a bathroom remodel. I asked her why she did it when the construction costs were so high. “Ugh, SC, I wanted to put it off so badly, but a leak from our shower caused our subfloor to rot. We have to deal with a bigger problem now.” Since they had to rip out all of the tiles, it made sense to give the 1960s bathroom a makeover.
I asked her how she knew how much she could afford. Did she figure out what she wanted in the bathroom and then brace herself for the expense? Her response got me started: “I called my agent and asked her to give me an estimate of what we could sell our house for, assuming we’d upgrade the bathroom. This helped us keep the cost in line. We could give a budget. ” to our contractors. “
What a concept! I called the agent Karen Moulton at Capital Sotheby’s International Realty and asked her if people were really asking the real estate agents to give them a home value that would require repairs or new additions. She got very animated and said, “Yes! When you get on a project and you know what to expect when you sell, you can decide how much to spend. We don’t want you to over-improve and not are able to get your money out of it. ” of the House.”
There is a myth that everything you do to a home increases its value by at least the amount you spend, but the reality is that people should be mentally prepared to get less value from the cost of remodeling. The recent rise in construction costs is unlikely to help. And remember, not all remodeling investments are created equal. The Housecall publication gave a garage door replacement as an example of a project with a 94.5% ROI. But a major upscale kitchen remodel had a shocking return of only 54%.
I also think about the frequency of the renovation. Shouldn’t a kitchen design last a good 20 to 30 years? A buyer only pays for one kitchen, not two or even three. Think of the influence of HGTV, an entire channel devoted to home improvement that seems to convince us that styles for kitchens and bathrooms are changing just as quickly as styles for jeans. This frequency and the extent of the upgrades will certainly determine the scope from investment to consumption.
A pair of fashionable $ 300 worth of jeans suddenly seems pretty affordable next to the tens of thousands of dollars that are now mainly spent on enjoyment and consumption rather than investing in the spaces we create.
I asked Stephanie why she was sweating the cost of her bathroom when so many people are enjoying the upgrades so much. She answered very matter-of-factly. “My husband and I love to travel. It is our pleasure and I am thinking about how we could use this money to do what we love most. When I see the money go out the door, will realize to me that we are on vacation every day instead of going to Europe. “
Point taken. How do we pay for conversions? Home equity seems simple, and in fact, many people are again using their homes as ATMs. Of course there are a couple of problems. Since people don’t want their payments to go up, they can extend the loan to keep payments the same. They may not be considering the freedom to be financially independent at their target retirement age and how that could be jeopardized.
But then let’s say you take out the home equity and keep the life of the loan the same. You agree to higher overheads that could negate travel or vacation or happiness discretionary spending, or worse, you need to lower retirement savings to make room for the higher payment.
The best way to pay for a remodel? For this, save in advance. Open a trusted old savings account, find out what and how much you want to give up each month to put that money in a remodeling account, and automatically transfer that money into savings. When you save for the project, you are far less likely to sacrifice expenses for experiences that are enjoyable or reduce retirement savings. When the time is right, consider making an initial call to the real estate agent, not the contractor.
Oh, and in our case, before we fix the drywall behind the timeout chair, we should probably replace the broken window on the garage door with an ace soccer shot.
Sarah Catherine Gutierrez is the founder, partner and CEO of Aptus Financial in Little Rock. She is also the author of the book “But First Save 10: The Only Easy Money Train That Will Change Your Life” published by Et Alia Press. Contact them at [email protected]
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