Sixty-seven percent of American homeowners are planning a home renovation project in the second half of 2014, a May Realtor.com survey found. Twenty-two percent of these cited preparing their home for sale as their reason for renovation, and 20 percent of all respondents planned to list their homes for sale before the end of the year. Remodeling activity will stay strong all year, Realty Today projects, especially kitchen and bathroom projects. If you’re planning a home renovation project before you sell, arm yourself first with a strategy for finding and financing a profitable renovation opportunity.
Renovations With the Best ROI
Remodeling magazine provides an online cost-vs-value guide for 35 popular renovation projects. In terms of percentage of cost recouped, adding a steel entry door leads the list, costing an average $1,162 and representing a 96.6 return on investment. Other winners range from cosmetic to major improvements, including adding a wood deck, attic conversions, garage door replacements, fiber-cement siding, replacement windows, vinyl siding and minor kitchen remodeling.
If you don’t want to tackle a project as involved as remodeling a kitchen, you can always perform a simple renovation such as laying better carpet or buying furniture to enhance the appearance of a room, bearing in mind the impression the new look will leave on prospective buyers when you’re trying to sell your home.
Estimating What You Can Afford
Once you have some potential renovations in mind, it’s time to check their feasibility by estimating what you can afford. Houselogic recommends a four-step budgeting process:
- Begin by estimating the costs of your envisioned project, keeping in mind your potential return on investment
- Next, compare the projected expense with your available budget, taking into account what you already have saved up as well as your financing options
- Once you’ve set a spending limit, get quotes from at least three contractors, requesting an itemized bid and doing due diligence in checking the contractor’s previous work, references and reviews
- Finally, after comparing the quotes you collect with your budget, make any adjustments you need to bring your project in line with what you can afford
If your initial idea looks too expensive, you may be able to find lower-cost alternatives or scale down to something more affordable.
Financing Options
If your project needs financing, your credit rating comes into play. FICO advises improving your score by pursuing a three-step strategy of obtaining your report, setting up automated payment reminders and reducing the amount you owe. Getting your balance below 30 percent of your credit limit is ideal, and the closer you can lower it toward 10-20 percent, the better. Start setting aside a portion of your monthly budget toward paying down your balances. If you receive periodic payments from a structured settlement, you may be able to sell your future payments for a lump sum of cash now. You could then use this money to help pay down your debt.
When selecting a financing option, This Old House recommends you start by comparing the cost of a home improvement mortgage against refinancing your mortgage. If you decide not to refinance, a home equity loan is usually your best option, followed by a home equity line of credit. Other options include FHA 203(k) mortgages, energy-efficient mortgages, and B and C loans, and tapping into personal assets.