Tag Archives: renovation loans

COVID-19 Fallout Spreads to Mortgage Refinances in Canada

Mortgage refinancing in Canada is the latest domino to topple in the wake of the COVID-19 pandemic’s impact on our economy.

In fact, all forms of mortgage financing have been increasingly more challenging the past several weeks. Fortunately, most purchase transactions already committed to during these early transition stages are still going through.

Refinances are another matter though. They are uninsurable, so the lending risk sits squarely with the lenders; whereas purchase transactions facilitate changes of ownership, and the associated mortgages are a necessary and essential part of that process. Mortgage refinances are arguably a non-essential process.

COVID-19 impact on refinancesWhen people refinance their mortgage, it is quite simply to get to a better place financially. For some, it is to reduce the mortgage interest rate, lower the monthly payment, and extend the term. For others, it is to extract equity from the home, often for one of the following reasons:

  • consolidating high-cost consumer debt
  • combining a second and first mortgage
  • financing home renovation projects
  • funding post-secondary education
  • assisting with a down payment for children buying their first home
  • paying off a consumer proposal early
  • funds to pay CRA tax arrears
  • tapping into home equity to help  children with the down payment or closing costs on their first home

Market uncertainties have rendered most of these more difficult than a month ago, and in some cases impossible.

Three Reasons Why Mortgage Refinances Are Tougher For Canadians

The other day one major chartered bank announced:

“In view of the ongoing COVID-19 situation, the following changes are being made to lending policies affecting new applications submitted to us on or after Thursday, April 9, 2020. These changes are required due to declining employment, energy sector impacts, unstable property values, and restrictions on appraisers being able to access properties for appraisal reports.”

But as a result of COVID-19, there are three main reasons why mortgage refinances have become much tougher for Canadians…

  1. More Stringent Scrutiny of Applicants’ Income and Employment
  2. Lower Appraisal Valuations Than Expected
  3. Lender Cutbacks in Maximum Loan-to-Value Ratio

1.     Tougher Scrutiny on Applicants’ Income and Employment

Lenders are understandably skittish about income stability in the current market. They aren’t just worried about whether you have sufficient income today, but also whether your employment is safe and you will continue to have an income in the months ahead.

income verificationCanada lost a record one million jobs in March 2020 according to BBC News, and you can expect more layoffs and job losses as the full impact of COVID-19 becomes known. The Conference Board of Canada said on April 6th that a combined 2.8 million jobs could be lost during March and April, equal to nearly 15% of total employment.

Even though many of these job losses may prove to be temporary, no one knows.

And if you are in the business of lending money to people, you are going to be looking very carefully at all applicants’ employment income – both for what it is now, and what it might become when the current stay-at-home policy runs well past the month of April, as many experts feel it will.

Prime Minister Trudeau said recently [there will be] “No return to ‘normality’ until a coronavirus vaccine is available.” And that might not be till 2021!

What this means is that even if you had sufficient income to qualify for the desired mortgage amount two months ago, that might not be the case now, and as such, lenders have become more conservative and risk averse.

Mortgage Lenders Now Want to See All Income Documents Upfront.

If the borrower’s income and employment cannot stand up to scrutiny, there is no point going further. Here is what lenders are saying right now:

One Chartered Bank Says:

For any application using self-employed (BFS) income, in addition to standard income documents, the broker must provide us with a description of the business, when established, number of employees, and its current status (e.g., operating, shut down).

Note: we may request additional income documents or conduct additional due diligence at our discretion to verify current income/employment status.

Additional due diligence will be required to assess the viability of the business post COVID-19. To assist in the assessment, please consider asking your client for their most recent financial reporting, i.e., interim tax reporting.

One Monoline Lender Says:

If a borrower has been laid off, we will not use their income to service the file unless an exception is granted by us and the mortgage insurer (if required). Neither EI nor the Government of Canada Emergency Response Benefit are eligible for inclusion in qualifying income.

One Credit Union Says:

As we all work through this challenging time together, we will be reviewing the income sources of all applicants in relation to the Essential Service workplace published by the Ontario Government. https://www.ontario.ca/page/list-essential-workplaces

As you would expect, if your applicants do not work in one of these essential service sectors, we will require additional confirmation of their employer’s commitment for continued pay during the COVID lockdown.

We will not utilize any temporary Canada Emergency Response Benefits in qualifying calculations.

2.     Appraisal Valuations Are Coming In Lower Than Expected

Appraisers rely on recent sales data to come up with comparable properties for their appraisal reports. But sales are down so much since mid March there are fewer to compare to. As reported in the Globe and Mail, Carolyn Ireland on March 31, 2020, wrote:

COVID-19 impact on home appraisals“Ontario remains under a state of emergency, and while the provincial government deemed most of the real estate industry “essential,” it did so in order to permit transactions to close – not to allow the industry to carry on with business as usual.”

And there is no incentive for appraisers to go high on their estimates – in the teeth of so much pessimism and conservatism. I think we will start to see more and more transactions fall off the rails because of low appraisal values.

Anecdotally, I’m seeing behavioural changes among appraisers that will lead to more values coming in lower than would have been expected a short while ago.

For example, some appraisal values are being submitted with a low, medium and high value. The other day a colleague had a mortgage amount cut back with a major chartered bank. The low was $1.5 million; the medium value was $1.6 million and the high value was $1.7 million. The bank had to take the medium value and the loan was cut back by 130k.

And, Actual Resale Values Are Starting to Drop

Rob McLister over at RateSpy notes, “If HouseSigma is in the ballpark, median GTA home prices are sliding hard in April. It estimates the median GTA home value is down to $740,000. That’s a 6% drop from the February peak of $789,000. Of course, these are just estimates and the data for April is volatile and incomplete.

We’ll check HouseSigma numbers against official real estate board data in early May. Realtor quote of the day:

“A couple of my sellers are nervous that things are going to get worse, so they’re taking what they can get.”

The fact is listings are down dramatically, and there are no open houses anymore. Buying a home for many is a luxury to be deferred till things settle down.

So the net is, it appears appraisers are being more cautious today, and there is nothing on the horizon that’s likely to change this. No one knows how fast buying activity will pick up when the dust settles from COVID-19, so cautious valuations are probably the new normal.

3.     Lower Loan-to-Value Ratio Lending Maximums

Before COVID-19, only private mortgage lenders could refinance higher than 80% of the appraised value of a property. It’s against the rules for institutional lenders. Mind you, there are not many brave souls who want to lend over 80% these days.

One small bank has quietly announced they will only refinance to 75% of the appraised value. And many B-lenders, on their own volition, have already cut their maximum loan to value (LTV) to 75%, and that is in densely populated urban areas.

Their maximum LTV is less in rural areas and smaller cities. This percentage will face further downward pressure in the coming months.

And right now, private lenders are also exercising more caution than usual, pulling back on their maximum LTV. The individual retail lender has already gotten cold feet and isn’t at all happy over 50% LTV. Mortgage Investment Corporations (MICs) remain open for business at decent LTVs, but many are expecting higher overall returns on their capital.

These lower loan-to-value ratios, coupled with declining appraisal values, are shrinking the number of fundable mortgage refinance transactions.

Is There a Bright Spot for Refinances?

There’s an old adage that lenders like to give loans to people that don’t need it. That is probably more true today than ever, including for refinances.

In the United States, mortgage rates have already begun to fall quickly, especially for terms of 10 and 15 years, and there is rising interest among many to take advantage of a once-in-a-lifetime opportunity to refinance for a lower rate and radically reduce the remaining term of their mortgage. If you have sufficient equity that a light valuation doesn’t matter, and secure income, this could be a really great time to refinance.

This hasn’t happened yet in Canada, but could be the next phase for us as well. And, in general, if you have good enough income, have lived in your home for a while, and haven’t borrowed against your growth in equity, you may still be a good candidate for refinancing. (I’ll write more about this in a future article).

The Takeaway

It’s a completely different world for mortgage refinancing than just a month ago.

Factoring together loss of income, lower real estate values, tougher appraisals, and lower loan-to-value ratios, it’s not hard to understand why the landscape for mortgage refinances has cooled considerably. Some refinances for specific types of borrowers will still be possible, but most of the typical cash-out deals we’ve seen for the last several years using home equity to solve debt problems, or large cash needs, are going to be fewer, and much harder to do.

Final word on this topic comes from respected industry veteran Ron Butler, who says, “Nothing will be the same for maybe the next two years. The old world of lending is gone.”

Source: Mortgage Broker News
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4 Tips for Flipping Houses Successfully

Here’s how to find the right house to flip — and know what sort of renovations will help you command top dollar.

One effective way to make money through real estate investing is to know how to buy and flip houses. Often, this involves buying homes that are priced under-market, such as foreclosures or short sales, renovating them, and then selling them shortly after the fact at a higher price.

But flipping houses isn’t for the faint of heart, and if you don’t know what you’re doing, you could wind up losing money. With that in mind, here are a few tips for flipping houses that will increase your chances of coming out ahead financially.

1. Find a house to flip in the right location

The purpose of flipping a house is to find a buyer who’s willing to pay a handsome price for your hard work. As such, there’s no sense in buying a home in a stagnant market, because that property is likely to sit for a while once your renovations are done. A better bet? Do your research to find areas where housing is in high demand. Some generally good bets include suburbs of major cities with highly-rated school districts, areas in close proximity to major attractions, or metro areas where housing inventory is generally limited.

2. Make sure you’re buying well below market value

Flipping a home often means sinking thousands upon thousands of dollars into renovations. Even if you’re handy enough to do that work yourself, and have the time for it, supplies and materials cost money. Therefore, make certain the price you’re paying for a home to flip is reasonable, given the amount you’ll need to put into it. This means you may not want to buy a foreclosure at auction, when you’ll often be unable to perform an inspection. A better bet could be a short sale or REO property, where you have a chance to see what you’re getting into.

3. Focus on improvements with the best return on investment

If the home you buy to flip has damaged plumbing and out-of-code electrical work, you’ll clearly need to address those issues if you want to be able to sell it. But once you tackle your “must do” repairs, set priorities on cosmetic enhancements. Typically, you’ll get more bang for your buck if you sink money into kitchens and bathrooms — these are high-profile areas that tend to be important to buyers. At the same time, focus on low-cost improvements that offer a lot of value. For example, paint and carpet are fairly inexpensive but make a huge impact. Refreshing a home’s walls and floors could be a better bet to drive up its purchase price and attract potential buyers than putting in high-end lighting features.

4. Don’t over-improve that property

When you buy a home in disarray, it’s easy to go overboard on renovations to the point where it becomes the nicest property in town. That’s not necessarily what you want. If most homes in the area don’t have marble flooring or ultra-high-end kitchen appliances, follow that trend. You don’t want to improve a home to the point where you have to price it at the very top of its market. Often, buyers will balk at buying the most expensive home on the block because it’s a sign that they may not recoup their investment once the time comes to sell the house .

Flipping a home is a great way to be successful as a real estate investor. Just make sure you know what you’re getting into so you don’t lose money. If you’re not confident, talk to people who have been through the process before. Enlisting the help of a local real estate agent could also help you not only identify the right home to flip, but also invest just the right amount of money into making it marketable.

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Source: MillionAcres.com – By: , Contributor
Published on: Oct 27, 2019
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How Long Is That Remodel Going to Take?

Removing kitchen floor during a house remodel
Image: ItsOverflowing.com

Some remodeling projects go on for weeks and make a mess of your home life. Here’s how to survive.

Renovations can take weeks — and sometimes months. That means endless days of subcontractors traipsing through your home, noisy tools, and major dust. Even some minor projects can disrupt your daily routine. Before you begin to remodel, know what’s in store for you and your family.

We’ve highlighted nine common remodeling projects that homeowners are likely to undertake — projects that require professional contractors and that take at least one week to complete.

We also talked with veteran remodeler Paul Sullivan, who has renovated homes for 34 years and is president of The Sullivan Company in Newton, Mass.

Sullivan helped us rate each project on a “disruption scale” of 1 to 10, with 1 being the least disruptive to your everyday home life and 10 the most. If your project reaches a 10, consider getting a hotel room for the duration.

Attic Conversion

National median cost: $75,000

Time: 8 to 10 weeks

What’s involved: A project that converts unconditioned attic space into a bedroom must include egress windows and at least one closet. Most likely, you’ll extend plumbing, HVAC ducts, and electrical wiring to the attic, and add insulation, drywall, and flooring.

Disruption scale: 3  Luckily, most of the work is in the attic and doesn’t involve your main living areas. You’ll have to put up with contractors moving through the house to get to the top, so provide drop cloths or old rugs to protect your floors. Also, plaster dust from drywall installation and finishing likely will float throughout your home, so you’ll want to change furnace filters every two to three weeks during the project.

Refinishing Hardwood Floors

National median cost: $7 per square foot

Time: 2 to 14 days

What’s involved: Sanding, staining, and sealing wood floors.

Disruption scale: 9  Whether you’re refinishing one floor or an entire house, the process involves a world of hurt. You have to move furniture and cover surfaces to protect from wood dust, which disrupts the flow of family life. And if you use oil-based sealants, you’ll have to live somewhere else to avoid breathing VOC fumes. Plus, you won’t be able to walk on floors for at least two days after the last coat of sealant is applied.

Related: Should You Refinish Hardwood Floors Yourself?

Bathroom Renovation

National median cost: $30,000

Time: 2 to 3 weeks

What’s involved: Turning your outdated bathroom into a dream spa includes updating plumbing fixtures, installing ceramic tile around a porcelain-on-steel tub, replacing an old toilet with a low-flow, comfort-height model, and installing ceramic floor tiles and solid-surface vanity counters.

Disruption scale: 7 to 10  If you’re remodeling your only bathroom, expect major disruption of your personal hygiene routine. You’ll have to wash in the kitchen sink, and install a portable potty in the yard or make friends with a neighbor when nature calls. You’ll have less pain if you have more than one bathroom in the house. Even then, you’ll suffer water outages during plumbing updates. And if you’re remodeling a master bath, you must put up with workman tromping through your bedroom.

Related: 7 Smart Strategies for Bathroom Remodeling

Complete Kitchen Renovation

National median cost: $65,000

Time: 8 to 12 weeks

What’s involved: Replacing cabinets, installing a kitchen island and countertops, replacing appliances, adding lighting, and changing flooring.

Disruption scale: 8  Kitchens are the heart of the home, so when they’re down, you’ll eat out more, wash coffee cups in bathroom sinks, and hold family meetings in the family room where your microwave and fridge now live. To ease the disruption, your contractor can easily set up a construction sink somewhere by running a couple of hoses from existing kitchen plumbing through the dust wall to a make-shift kitchen in an adjacent room.

Kitchen Upgrade

National median cost: $35,000

Time: 1 to 2 weeks

What’s involved: Replacing cabinet box fronts, adding new hardware, updating appliances, sinks, and faucets, and installing new flooring.

Disruption scale: 5  Kitchen facelifts are less disruptive merely because they’re finished faster than major remodels. You’re mainly pulling and replacing, so plumbing and electrical can stay put, and you’ll still have access to your fridge until the new one arrives.

Basement Conversion

National median cost: $40,000

Time: 2 to 3 weeks

What’s involved: Finishing the lower level of a house to create a playspace and video area for kids.

Disruption scale: 2  Seems counter-intuitive, because turning unfinished space into extra living space requires all the finishes of a new addition — electrical, flooring, wall surfaces, and insulation. But the good news: Work is confined to a part of the house you rarely use. Contractors can enter and exit through the basement door (if you have one), and noise and dust are easily confined. The biggest disruptions come from periodic electrical outages.

Roofing Replacement (Asphalt Shingles)

National median cost: $7,500

Time: 1 week

What’s involved: Removing and replacing roofing moisture barriers, flashing, and shingles.

Disruption scale: 1  Replacing your roof is one of the least inconvenient remodeling projects you can do. You’ll have to put up with some banging, move your cars away from the house, and keep dogs and kids out of the yard during the demolish phase. Roofers will cover the ground around the job to corral debris; and after the job, they’ll go over your yard with a magnetic roller to pick up stray nails.

Siding Replacement (Vinyl)

National median cost: $13,350

Time: 1 to 2 weeks

What’s involved: Removing and replacing old vinyl siding with new vinyl siding.

Disruption scale: 3  You’ll endure lots of banging around your house as the new siding goes up. If noise bothers you, stick in your earbuds and listen to something soothing. Even though contractors will cover the area around the house, expect some debris to litter the yard. Keep curious kids and pets inside while work is being done to avoid accidents.

Source: HouseLogic.com – LISA KAPLAN GORDON

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Home renovations are costly, prone to errors

Jennifer Skingley and her partner—the former an erstwhile project manager and the latter an executive manager—are meticulous planners, so no detail was spared when they planned a home renovation. However, no amount of planning could have prepared them for the aggravations they would subsequently endure.

“We got the keys to our home in February 2018 and before we even took possession of it we had teed up people to do the work. We really researched and organized our renovation,” said Skingley. “There were several false starts trying to get people who were available to commit to doing the work. We interviewed a ton of contractors, got multiple estimates and did as much of the leg work ourselves as humanly possible without actually being construction experts. We tried to hand everything over on a silver platter, but for the work to actually start was like pulling teeth.”

And that was only the beginning, added Skingley.

The basement level needed external waterproofing, upgraded plumbing and a new bathroom was fitted in, while the kitchen and upstairs bathroom also received significant work.

However, because of last minute cancellations by contractors and a seeming deluge of errors, the home renovation took much longer than originally anticipated and cost over $80,000.

“Management was the issue,” said Skingley. “There were some blatant oversights and lossages with the team of people we picked, so we definitely ended up spending more money than we had allocated, even though we budgeted quite thoroughly from the outset, because we know when you tear things apart you find ugly surprises, but we there were things like having to tear floors out a second time because they forgot to get a permit. Silly little things like that took us way over and above. Even sourcing material was challenging.”

Unfortunately, Skingley and her partner’s nightmare renovation is extremely common, and given the exorbitant cost of the work, most homeowners can afford nary a thing to go wrong, says Casper Wong, co-founder and COO of Financeit, a consumer financing platform.

“When most Canadians renovate their homes, they aren’t offered flexible payment plans by their merchants, and while there are more traditional ways of paying, like with cash or using HELOCs [home equity lines of credit], not every Canadian can afford to make cash payments up front,” he said.

“Not everybody has access to HELOCs. Only three million Canadians have access to them, and on average Canadians owe $65,000, and 25% of Canadians with HELOCs just make interest-only payments.”

Financeit, a digital platform, works with thousands of contractors to homeowners make those large renovations in low-installation payments.

“We use our technology—and we own the entire stack, which allows us to manage credit, underwriting, servicing, and we work with multiple lenders and have a mobile app,” said Wong. “Not every Canadian can afford to make cash payments up front and usually when they do, they’re more reliant on credit, but credit cards have high interest.”

Source: Canadian Real Estate Magazine – Neil Sharma 12 Aug 2019

 

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10 Signs to Watch out for to Avoid Renovating a Money Pit

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20 Common Home ‘Renovations’ That Can Accidentally Lower A House’s Overall Value

When it’s time to sell their house, a homeowner will want to do everything they can to increase its market value. Of course, they’re aiming to turn the best possible profit, so that means they’ll need to ensure their home is in pristine condition when realtors bring around potential buyers.

You’d think a home with all the latest bells and whistles would be a surefire target for buyers, but the truth is there are plenty of upgrades that actually decrease a home’s value—and therefore make it far less marketable than comparable listings. You’ll never guess some of the ways putting money into your home can actually work against you!

1. Fancy light fixtures: While you might think adding dramatic touches to your home’s decor would make a listing more appealing, it can actually turn potential buyers away. If the light fixtures don’t match the style of the home, it can be a huge turn-off.

2. Wallpaper: Wallpaper is notoriously difficult to remove, and sometimes the choices in patterns can be a little too “in your face.” Instead of fancy designs, go with neutral paint instead. This allows the buyer to envision their own decorating—and it makes for an easier sale for you!

3. Textured walls: As with wallpaper, ornate textures on walls and ceilings can be a real pain to remove. Instead, check out textured wall decor; it’s far easier to remove, not to mention it’s usually cheaper.

4. Unique tiling: Many people have a tendency to lay down tiles that fit their own personal style, but chances are a potential buyer won’t have the same taste. Go with a traditional neutral floor and customize your space with a unique (and easy to remove) rug instead.

5. Carpeting: According to a study, 54 percent of homebuyers are willing to pay more for hardwood floors, which means homes with a lot of carpeting are less desirable. Carpets show their wear earlier, and colors and styles are usually based on personal preferences.

6. Bold paint: Bold and vibrant paint colors usually turn off potential buyers since the hues here are limited to the current owner’s preference. Fortunately, repainting rooms is an easy and affordable fix—and it’s a worthy investment.

7. High-end kitchens: In 2015, the national average for a kitchen remodel was a little less than $60,000, but the resale value was only priced at $38,000. To avoid spending so much on a project that will cost you in the end, only focus on the aspects of a kitchen that truly need sprucing up.

8. Luxury bathrooms: As awesome as a whirlpool tub is, it can be difficult to clean and sometimes hard to step into for some people… and that will deter buyers. A simpler walk-in shower appeals to more people looking to buy a home.

9. Home offices: Modern technology has allowed for more and more people to work from home, and they usually convert a bedroom into a personal work space. However, that can knock as much as 10 percent off a home’s value. If you have to use a bedroom, avoid bulky desks and shelving units so the room can easily be converted back.

10. Combining bedrooms: Combining two bedrooms that are next to each other to create a bigger room is perfectly fine for couples without children, but if they don’t plan on living there forever, the removal of one bedroom will knock down a home’s value.

11. Closet removal: Some people make the decision to turn large walk-in closets into other spaces, but this can actually hurt a home’s resale value. People will always need closets; they won’t always need a larger bedroom or bathroom.

12. Sunrooms: Sunrooms are actually some of the worst renovations to make to a home when it comes to return on investment! Homeowners need to think carefully about how much they’ll actually use the space before splurging on the expensive addition.

13. Built-in aquariums: These aquatic additions might make a home feel modern, but they require a massive amount of upkeep that many potential buyers aren’t willing to put in. Opt for a standard stand-alone fish tank instead.

14. High-end electronics: As cool as in-home movie theaters and other high-end electronic equipment may be, they usually throw off potential buyers who aren’t looking for these types of luxuries. Certain built-in technologies can also quickly become outdated.

15. Swimming pools: Many people might think swimming pools increase a home’s value, but it’s actually the opposite. Sure, if a buyer has children who will use it every day, that’s one thing—but many times, people see pools as money pits!

16. Hot tubs: Just like pools, hot tubs are always a gamble. The constant maintenance can throw off a buyer, and they’re also potential hazards for small children. Portable hot tubs are a much smarter investment if you truly want one.

17. Garage conversions: Some homeowners park in their driveways so they can renovate their garages into custom spaces like home gyms. However, many buyers actually want to park in their garages, not work on their lifting form.

18. Intricate landscaping: Unless the person buying your home is a landscaper who intends to maintain an intricate garden, costly outdoor decor will deter potential buyers. Keep gardens beautiful—but easy for upkeep.

19. Messy trees: No one likes to spend their afternoons raking up massive piles of leaves, but many types of trees will ensure that happens every year. If you plan on planting vegetation, keep in mind which types will create a huge workload come autumn.

20. DIY projects: Many people come up with unique ideas while they’re living in their home, and they put the effort in to make the renovations. However, not everyone is going to want something like an attic bedroom when they’re looking to buy! Keep that in mind.

The takeaway? Don’t over-personalize your living space! Keep it neutral and appeal to as many potential buyers as possible. If you’re putting you home on the market any time soon, don’t make these mistakes!

Share these tips with your friends below!

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Seven Renovations That Could Backfire and Hurt Your Home’s Value

If you live in an area where homes are selling like hot cakes, you may be feeling exceptionally confident in the value of your property. And as a result, you may be considering a home upgrade you’ve been dreaming of for years. Perhaps you want to add a pool, or maybe you want to add more square footage to your home. Or maybe you’re just aching to do something because you’ve been watching way too much HGTV.

Before you dip into your savings account or apply for a home equity loan, experts say you should think long and hard about your financial investment and your choices. Just because a specific upgrade seems like a good idea right now doesn’t mean it will pay off later. Plus, there are some upgrades that many homeowners regret almost instantly, either because they wind up overspending or because were a bad idea in the first place.

Seven Home Improvements You May Live to Regret

Home remodelers, beware. Spending money to “upgrade” your home doesn’t always pay off, and it could even hurt your home’s value in the long run. Here are some upgrades the experts suggest you steer clear of:

#1: Garage conversion

A garage conversation can seem like a good idea if you need more living space and don’t mind parking in the driveway or street. However, this remodeling project comes with plenty of risk. Not only are garage conversations often done poorly and in a way that makes them look obvious — and awkward — but you can face problems if you remodel your garage without getting proper permits.

Vincent Nepolitan of Planet Home Lending points out another potential problem: When you go to sell, you may find a more limited pool of potential buyers. Not having a garage for buyers to park their vehicle can limit the number of people you get through the door, thus preventing you from getting the sales price you want for your home. This is especially true in areas where all the neighboring homes have garages, Nepolitan says, and in areas with hard winters or sizzling-hot summers.

#2: Converting a bedroom for another purpose

With more people working remotely than ever before, it may seem like a good idea to convert a spare bedroom into an office. This can be a good idea if you only make superficial upgrades like replacing a bed with a freestanding desk. But there could be financial consequences if you pour a lot of resources into the renovation or make structural changes — converting the closet into a built-in desk area, for example — so the room no longer qualifies as a bedroom afterward.

The reason for this? Homes with more bedrooms can fetch a higher sales price and tend to attract a larger pool of buyers, says Georgia-based real estate investor Shawn Breyer. A buyer with two children might insist on having three bedrooms, for example, and be unwilling to consider any two-bedroom homes. They might also be willing to pay a premium to secure a home with a fourth bedroom they could use as a guest room.

The bottom line: When it comes to a home’s value, the more bedrooms the better — so don’t think long and hard before getting rid of one.

#3: Adding a pool

It’s easy to think having a pool would make your life more fun and more relaxing. After all, what’s better than spending a lazy day floating in the water with a cold drink or a good book?

Unfortunately, the reality of pool ownership doesn’t always line up with expectations. Pools may be great for summer, but they’re often expensive to maintain over the long haul, says CEO of Patch Homes Sahil Gupta, and require a lot of work, from adding chemicals to cleaning and maintenance.

And, you may not find your pool quite as fun in a few years’ time. Gupta notes that pools tend to go unused during winters and once kids leave the house, and that they may eventually become a safety hazard for grandkids or pets. (In fact, a pool can increase your home insurance premiums.)

Finally, only a limited number of buyers will even want a pool in certain parts of the country, so you might wind up selling your home for less than you wanted or waiting longer for a buyer as a result.

#4: Kid-related upgrades

While pools are commonly added by families with kids, there are other kid-related upgrades homeowners may rush into without thinking them through, says Julie Gurner, senior real estate analyst at TheClose.com. “Some upgrades consumers tend to regret are, for example, linked to children and their temporary place in the home,” says Gurner.

A solid example would be adding a basketball court to your backyard because your child is really into the sport. “Sports courts require maintenance and take up a large portion of the backyard recreation space,” says Gurner. And not every buyer will want a basketball court in their yard when you go to sell.

Before you go through with a costly upgrade that may only be needed for a few years, consider whether there are less permanent and less costly options available.

#5: Trendy interiors

Gurner points out another mistake that’s often fueled by HGTV mania — following fads and planning your home upgrades around what’s currently “hip.” Gurner points to the recent shiplap craze as an example, noting that the wooden-board wall cover that’s trending now may be the “wood paneling of the future.”

Other ubiquitous home improvement trends that could leave you wincing at your choices later on include stainless steel appliances, open kitchen shelves, brass accents, and basically anything that’s shabby chic. When it comes to fashion and trends, whatever’s “in” now is always on its way out at some point.

#6: Textured walls and ceilings

Speaking of outdated trends: Textured walls are so 1980s, but some people who never got the memo still slap a layer of popcorn on before they paint, even if it’s just to match other rooms in the house. But Breyer says that adding texture to walls and ceilings is a mistake — partly because it can turn off potential buyers when you go to sell, but also because it’s expensive to remove if you change your mind.

Breyer says that, most of the time, it costs $1 to $2 per square foot of space to have textured walls refinished with a smooth surface. Plus, you’ll also face the cost of repainting your walls and/or ceilings after the removal is complete.

#7: Over-improvements

Real estate agent Justin Moundas says that over-improvements tend to leave homeowners regretting their choices. “It never pays to be the nicest or biggest house on the block,” he says. “Often people regret investing so much into the home that it can’t be justified in the resale value for the area.”

According to Remodeling Magazine’s 2018 Cost vs. Value Report, some remodeling projects that don’t offer a great bang for your buck include big-ticket investments like backyard patios (47.6% return), a master suite addition (48.3% return), a major kitchen remodel (53.5% return), and the addition of a bathroom (54.6% return).

Each of these projects may help you enjoy your home while you live there, but they may leave you wishing you had spent your money elsewhere if you move within a few years.

If you want a home that’s a lot nicer than the one you have now, Moundas says upgrading to a different home can be a better deal than remodeling. By finding a different home that already has the floorplan and upgrades you want, you can avoid the hassle and stress of remodeling along with runaway costs.

The Bottom Line

If you watch popular real estate shows on HGTV all the time, it’s easy to think that home remodeling projects always pay off. After all, the stars of shows like Flip vs. Flop and Fixer Upper almost always turn bargain basement homes into spectacular investments, mostly by choosing the right upgrades and getting them for the right price.

But real life is not like television. In the real world, home upgrades are usually only a good idea if you plan to stay in your home and pick finishes that would appeal to the masses if you needed to sell.

Before you spend your hard-earned dollars on a pricey remodeling project, ask yourself what your goals are. Do you want to enjoy your chosen upgrades for years to come? Or are you simply following trends and keeping up with the Joneses? Do you absolutely need to upgrade to make your home livable, or could you get by with the home you have?

Be honest with yourself, and you may find a home upgrade is the last thing you need.

Source:  The Simple Dollar –

Holly Johnson is an award-winning personal finance writer and the author of Zero Down Your Debt. Johnson shares her obsession with frugality, budgeting, and travel at ClubThrifty.com.

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