Thinking a renovation might be in your future? According to a recent CIBC poll, you certainly wouldn’t be alone. Home renovations are big business in Canada with four out of ten Canadian homeowners reporting that they expect to take on home improvements in 2014, spending on average just under $20,000. Renovations are often rationalized on the basis that they are an investment in your property. But the return on home renovations is not always clear-cut and, depending on what you do, you may not even recover your costs.
Plenty of reasons to renovate
You may be considering a renovation to preserve or add to the value of your property. Or you could be interested in increasing the enjoyment of your home. Some people take on renovations to produce income from their property and others do them to be able to remain in their home as they age. Finally, there are the people who renovate simply because they like doing it. Whether or not your renovation turns out to be a wise investment will come down to what you hope to accomplish and if you achieve your goals.
For many Canadians, their home is their single biggest asset and, as their principal residence, the return on any improvements will not attract capital gains tax. At a minimum, you want to take on projects that will preserve your home’s value, such as replacing the roof, waterproofing and other maintenance work. When planning your renovation, think like a perspective homebuyer to determine what would have lasting appeal. If you are planning to sell your home in the near term, get advice from a realtor who can tell you what renovations help sell homes in your area.
If you’ve always coveted a backyard pool, built-in wine cellar, or remaking your basement in the image of an old English pub, recognize that these types of renovations are for your enjoyment and are unlikely to add to your home’s value. Take these on only if you intend to stay in your home long enough to reap the benefit.
If you are feeling “house poor” but don’t want to move or draw upon the equity in your home, renovating to add a rental suite can help you extract money from your home while you continue to live in it. If you travel frequently, the presence of a tenant in your home can be reassuring while you are away. Furthermore, a nanny or in-law suite may be a big selling point in certain areas. Always check the rental income potential where you live to evaluate if your renovate-for-income plan makes financial sense.
People who live in Ontario may be eligible to participate in the Ontario Power Authority’s microFIT program, generating renewable energy from their home through renewable sources (solar, wind, water or bioenergy) and getting paid to supply this energy to the electricity grid. A typical solar panel installation can generate a return on your investment in the 14% range, providing a guaranteed source of monthly income for 20 years.
Staying in your home
Governments would prefer that people remain in their homes as long as possible and, according to the 2011 census, more than 90% of seniors are living independently. Different levels of government provide support to help seniors stay in their homes, either in the form of forgivable or low-cost loans, and tax credits for renovations, such as accessible baths and showers, and non-slip flooring, that can help make your home healthy and safe. What’s available depends on where you live and eligibility for some programs is based on your income.
The bottom line on renovations – before you call up a contractor and start drawing up plans, be honest about why you are renovating and adjust your payback expectations accordingly.
These articles are for general informational purposes only. Please obtain professional advice before taking any action based on this information. No endorsement or approval of any third parties or their advice, information, products or services should be implied by any references to third parties contained in any article. Trademarks cited in these articles are the respective properties of their owners.