Renovate or not?
First, check out comparable homes in your area. Would your home suffer by comparison if you put it up for sale? How many bathrooms and bedrooms do they have on average? Do most have gourmet kitchens and finished basements? If you decide you want — or need — to keep up with the Joneses, then do a little research to see how likely it is that you’ll be able to recoup the cost of your proposed renovation when you sell your home. (The slideshow below can help.) How much would it matter to you if you couldn’t eventually recoup those costs?
Don’t price yourself out of the market.
As you think about your proposed renovations, also keep in mind that you could make your home more difficult to sell by adding too much to its value.
Putting in that gourmet kitchen might make your house the most expensive one on your block if you try to recoup the cost when you sell. Plus, renovations don’t always make up for their cost when you put your home on the market. According to the Remodeling 2023 Cost vs. Value Report, for instance, you are likely to recapture only 42% of what you spend on a major kitchen remodel.2
Do stay open to the possibility of moving to a new home as an alternative.
If, after pricing out your renovation options, you find that the cost — and inconvenience — outweigh the gains, you might consider looking for a house that already has the amenities you want.
Decided to go ahead? Now, how will you pay for the renovation?
With any renovation project, it’s easy to get caught up in the fun decisions — selecting your fixtures, appliances, colors and decor. But before you get too carried away, make sure your finances are in order.
Don’t start without a budget.
A ballpark figure isn’t quite enough — it’s important to establish exactly how much you’re willing to spend. There’s an all-too-common phenomenon known as scope creep, in which you add a little of this and a little of that, and before you know it your budget is blown. Knowing (and sticking to) your number will help you determine early on what you can afford — and help prevent disappointment and financial stress later on.
Do research financing options.
If you’re not paying for your renovation with cash you’ve saved, you’ll need to borrow money. A home equity line of credit may be an attractive option, allowing you to pay your expenses as they come up. If you have enough equity in your home and your current mortgage interest rate is higher than rates for a new mortgage, you might also consider a cash-out refinance. If you don’t want to borrow against your home, look into traditional bank loans or credit card promotions, including limited-time 0% APR financing or reward programs that offer cash back.