It's that time of year when homeowners begin dreaming about the spring and summer projects that will help them improve and enjoy their property to the fullest.
"We start to see consumers start applying and talking to our bankers in February," says Mike Kinane, senior vice president of home equity and personal lending for TD Bank. He says the process can take about 30 days from application to funding, so now is the time to decide which project to undertake.
Before embarking on a home renovation, you need to find the right designer. Jennifer W. Howard, owner and principal designer at JWH Design & Cabinetry in Rye, New York, says the ideal person isn't going to be the contractor who is giving you a great deal because they have a gap in their schedule. Instead, homeowners will be better served by finding a designer and contractor who can work with their budget and schedule.
Nick Hodapp, associate broker with Atlas Real Estate in Denver, says homeowners should be wary of adding too many personal touches to their renovation design, particularly if they plan to sell in the near future. "You don't want to shrink your buyer pool," he says. Bold colors and unusual accents may look great to you but not appeal to a wide audience.
Once the plans are finalized, Howard recommends adding a buffer to the renovation budget. "Allowing for an extra 20 percent as a cushion [not only] helps offset unforeseen – and inevitable – building expenses but also allows for homeowner-driven upgrades and changes," she says. While no one wants to budget for cost overruns, homeowners may be able to recoup their costs if they decide to sell. For instance, adding attic insulation can translate to about a 107 percent return on investment, according to national average figures for 2017 cited in Remodeling Magazine.
With that in mind, it's time to consider what might be the right renovation for your home in 2018. Here are seven projects getting attention this year.
1. Additional finished floor space. The hot housing market in Denver has translated to low inventory and a higher price per square foot for homes in the metro area, Hodapp says. Similar market conditions exist elsewhere in the country, too.
That means homeowners who might be selling soon should consider adding finished floor space to their homes. "Anything from finishing the [entire] basement to adding an egress window for a basement bedroom" will help boost the value of a home, Hodapp says. In Denver, that amount averages out to $341 per square foot, according to the real estate website Trulia.
2. Repurpose existing space. Howard says there is no need to add on to a property to make it more livable. "Working within existing space, as opposed to adding extra square footage to a home, has gained traction over the past few years," she says. "It seems to be our biggest request right now."
Repurposing existing space may mean taking a family room and turning it into a library or study space for the whole family. Or it could be taking down interior walls or moving doorways, so the rooms transition smoothly. Howard notes that rather than trying to have everyone crowded around a kitchen island, there is a benefit to having a separate dining area. Even if the table is in an area that flows from the kitchen, it makes sense to mark different uses with different finishes, colors and decor. There are numerous opportunities to refresh a home by reimagining its footprint.
3. Outdoor living spaces. People continue to focus on creating outdoor living spaces for both their family's enjoyment and entertaining at home. A survey conducted by TD Bank at the Philly Home Show found outdoor renovations were the second most popular project for those in attendance. Outdoor living also topped the 2017 Home Design Trends survey conducted by The American Institute of Architects, with 33 percent of survey respondents reporting a 38 percent increase in demand. Outdoor kitchens, patios and decks are a few ways to maximize your comfort and time outside.
4. A second entrance or accessory dwelling unit. To help cover the cost of a mortgage, some homeowners are renting out rooms via short-term rental websites such as Airbnb and VRBO. To ensure privacy for both the homeowner and renter, some owners are renovating their property to add a second entrance that provides access specifically to the rental area. Another option is building an accessory building that can be rented out.
"We are seeing that more and more with millennial homebuyers," Hodapp says. Before scheduling this home renovation though, make sure short-term rentals are allowed in your municipality.
5. Add a main-floor bedroom. As children grow and move away, a second-floor master bedroom may no longer make sense. "Isn't it nice to turn off the heat on the second floor?" Howard says is the reaction of many empty nesters who move themselves to the main floor. Others move to the main floor for health reasons. Seniors may find it difficult or unsafe to climb stairs, and a main floor bedroom lets them remain in their home as they age.
6. Energy-efficient updates. Renovations that promote energy efficiency never go out of style. New windows, added insulation and high-efficiency appliances not only make a home more comfortable but also reduce the cost of living. That means lower utility bills for heating, cooling and electricity. The improvements could also make your home more attractive to buyers if you live in a market, such as Portland, Oregon, where energy audits are required when listing a house for sale.
7. Maintenance renovations. Kinane says many people have locked in low mortgage rates and have no intention of moving anytime soon. For these families, the renovations to consider aren't the ones that will change a house, but rather the ones that will maintain it.
These renovations include new roofing, siding and gutters. "It doesn't sound super sexy," Kinane admits. "It's not because you like the look. It's because you need a new roof."
If 2018 will be the year for your home renovation, consider whether the time is right for one of these projects. Then, find the right designer, contractor and bank to watch your dream plans become reality.
The biggest nest egg
Homes represent the bulk of even a moderately affluent preretiree’s wealth, beyond pension and Social Security income. Studies show that people should more fully explore how their home can be used as a key asset to help fund retirement.Home equity loan
Home equity loan
Pulling money out of your home is often not advised if the money is needed for basic living expenses. Lenders also need to be sure you’ll be able to repay the loan. One retirement-friendly use of home equity loan funds is remodeling, to make your home “senior-friendly” so you can continue living in it as you get older.Reverse mortgage
Reverse mortgages allow you to tap the equity in your home and stay there as long as you want, so long as you can continue paying property taxes, home insurance premiums, and maintenance expenses. Reverse mortgage fees have been criticized as too high, but the government recently began supporting a less expensive home equity conversion mortgage product called the HECM Saver loan. However, the “price” of smaller fees is that consumers get access to smaller shares of their home’s equity.Adjustable rate mortgage (ARM)
Adjustable rate mortgage (ARM)
A five-year ARM can be had today for less than 3 percent in some markets. If you know you will be selling your home within five years, getting a five-year ARM can allow you to pay down the principal balance on your loan and keep more of the equity for yourself when you sell the property.Rent a room
Rent a room
It can be hard to let a stranger into your home. It can be harder still to afford your home on a retirement income. Talk to friends who have done this and learn from their experiences. Insist on personal references and consider paying for a background check before executing a rental agreement.Rent your entire home
Rent your entire home
According to tax experts CCH, if you rent your home for fewer than 15 days a year, the money you receive does not need to be reported as gross income on your tax return. Also, if you’re planning to take an extended trip, your home can be safer if it’s occupied by a temporary renter than if you left it vacant. To increase your comfort level, work with established vacation rental companies.Downsize housing expenses
Downsize housing expenses
For many retirees, the smart housing move is literally that—a move to a smaller home and perhaps even a different state or country that offers sharply lower living costs. Be wary of being trapped in your home by memories or old possessions that can weigh you down emotionally and financially.Mortgage interest tax break
Mortgage interest tax break
Interest payments on your home are still tax deductible. You can deduct the interest on home equity loans as well. Interest deductions rarely turn a bad decision into a good one, but they should be included in your evaluation.Energy tax credits
Energy tax credits
Some energy tax credits were extended into 2011 and there are continued tax credits for solar and other alternative energy investments in your home. Check out a fuller summary from TurboTax of tax breaks over the next few years.Non-taxable home sales gains
Non-taxable home sales gains
Gains on the sale of your current home—up to $500,000 in gains for a couple—are tax-free. You must have lived in the home for two of the past five years, according to tax experts CCH, but there can be exceptions due to health or other emergency factors.See more Money slideshows:
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With more than a decade of reporting experience, Ms. LaPonsie’s work has been featured on MSN, CBS MoneyWatch, Yahoo Finance, NerdWallet and numerous other sites on the web. She has been a guest of Consumer Talk with Michael Finney and The Steve Pomeranz Show.
A native of Michigan, Ms. LaPonsie received her bachelor’s degree from Western Michigan University. You can follow her on Twitter or connect with her on LinkedIn.
Devon Thorsby | June 5, 2019
Homeowners should not fret, as long as they're prepared for the possibility of a downturn.