Homeownership is a major part of the American Dream.
For many families, their home’s value is their wealth or makes up the majority of their net worth. June is National Homeownership Month and made me reflect on my own home buying experience and how I used home renovations to personally increase my family’s net worth through forced appreciation.
One thing I’ve learned as a real estate investor is you can spend a lot of time looking for the perfect home–whether you decide to build it or purchase an existing home. However, you can create significant wealth from buying an imperfect home (fixer-upper) and doing your own renovations to increase the value of the home, also known as forced appreciation. Now I will share a few tips and tricks you can do yourself after purchasing a home to increase its value through home renovations, just like I did.
Choosing Your Renovations
My husband and I decided to build our current home. Before meeting with the builder, we set a budget for the design and upgrades and had a good understanding of what kind of renovations we could do on our own. This saved us time and money by grounding our decisions in financial facts and not just emotions.
The shiny upgrades offered by the builder were easily declined since we knew what we could do cheaper by doing renovations ourselves after the purchase. For example, instead of purchasing a kitchen backsplash, finished basement, or plush carpet, we decided to handle these ourselves. However, we did opt for the additional full bathroom and family sitting room because extra space is important for the value of the home and much harder to do yourself.
In most cases, it takes a lot of work to add rooms or square footage to your home, often involving new permits or extending your land. Therefore, if you are buying new, take advantage of bathrooms and bedrooms offered by the builder. These increase your home’s value and are much more difficult to do on an existing home. If you are looking at existing homes, look for ways to easily add bathrooms or bedrooms to increase the usable square footage. An unfinished basement leaves room for a second family room, another bedroom, or a rental unit.
If you are buying a used home, consider purchasing a home that is the right size for your family instead of having updates and new renovations. Research what sells in your community and what you can’t easily change yourself. For example, most people prefer single family homes with at least three bedrooms and at least two bathrooms, making these homes easier to sell and for a higher price in the future. That’s why we invested in the additional bathroom. Now we have a bathroom off each bedroom rather than having three bedrooms share one bathroom which will appeal to buyers once we decide to sell or rent the home later.
When choosing which home renovations to complete, take the time to understand what home renovations will add value and maximize your forced appreciation. Bathroom and kitchen remodels are almost always a good investment for increasing your home’s value, but creating additional rooms, bathrooms, or adding a deck can also give your home a nice boost in value.
Hiring a pro to finish our basement instead of using the builder saved my family at least $20K!
The builder wanted $50K to complete the basement with just the basics. We completed our basement for $30K and avoided interest on the purchase over the next thirty years. Just think, $50K at a 4 percent interest rate ends up costing over $85K on a thirty-year conventional loan. Also, we selected our contractor, designed a unique basement layout, supervised the work, and hired local inspectors to ensure the work was done up to code. We now have a much nicer basement than what the builder offered and at a better price. This has increased the value of our home by more than the $30K we spent.
Whether you buy new or used, upgrading bathrooms, backsplashes, and floors are easy improvements to make after the purchase which will help create forced appreciation. My builder was charging $1,500 for a backsplash in the kitchen. Instead, my brother-in-law helped me do my own for less than $500. If you find a used home with bathrooms, floors, or a kitchen that need a little TLC, use that to your advantage to negotiate a lower price and use the savings to complete the work yourself. A low purchase price, choosing the right home renovations to make, and managing them yourself will help ensure you increase your wealth through forced appreciation.
The Personal Benefits
Designing and choosing your own home renovations allows you to give your home a personal touch. You get to select the bathroom tiles, choose carpet or hardwood floors, and coordinate your backsplash with your paint colors. Doing it yourself also ensures the quality of the job is up to your standards and meets the needs of your family.
There are tons of horror stories about new home buyers getting recently flipped properties with subpar renovations. If you find a home on the market with recently done renovations, make sure to get an inspection and to ensure the renovations were done up to code and correctly. Ask the seller if any of the work or new appliances have warranties that will transfer when the house is sold and keep that info handy in the first year of owning the home, in case you need repairs done. Buyers beware that some flipped homes can be money pits if the renovations are done cheaply to sell the home fast without considering the long-term impact.
The Real Benefits: Increased Wealth
For most homeowners, home renovations increase your home’s value and your net worth. Bathrooms and kitchens sell homes, but there are other renovations or upgrades such as wooden decks, new siding, and even a garage door that increase the value of your home too. They are also attractive to buyers when selling your home.
When you decide to become a homeowner, make a list of items your home must have and other things that you can live without before you go house hunting to keep your search focused and smart. Renovations take time and money so if you don’t have enough cash (or credit) saved up to cover them consider securing low-cost financing to fund the renovations. If you stay focused on increasing your home’s value through forced appreciation and smart home renovations, you can see large increases in your personal wealth while creating a more enjoyable home for you and your family.
Do you have any other tips on increasing your wealth through home renovations? Have you had success increasing your net worth through forced appreciation in the past? Leave us a comment and share your knowledge with the community or ask a question and get some help.
Acquania Escarne is the creator of The Purpose of Money, a community of women building generational wealth for their families one dollar at a time. As an entrepreneur, real estate investor, and licensed insurance agent, Acquania has always been passionate about financial literacy. On her website, Acquania blogs about ways to help you improve your money habits, create wealth, and invest in real estate. Follow Acquania on social media for daily tips.