Doing Home Renovations With Borrowed Money

Since home values have gone up so much in the last year and mortgage interest rates are so low, it may make sense to borrow money to do a home renovation; but be careful.   First, don't go crazy.  Kitchen and bathroom renovations are the best return on investment.  They add value to a home, particularly over the long term.  If you are planning on selling your home and doing a renovation to increase the sale price, you must be very aware of what comparables in the neighborhood are selling for so that you will get back your investment and more otherwise why bother.   

I know, I know, you have seen all the shows on HTDV showing great renovations of fixer upper homes that they then sell for a lot more money than the cost of the home.  Yes, it can work that way, or not. But, believe me, they are not showing you the deals they lost money on.  Having done a major renovation, what I learned is that it cost a lot more than I originally intended and it took twice as much time than what was promised.  And, specific to older homes, once you start opening up walls, you will find plumbing, electrical and sometimes foundation work that needs to be done even before you get to the great kitchen or bathrooms.   If the home is more than 20 years old, plan on it.  

These days on HTDV, we are seeing a lot of bold tiles with busy patterns installed.   They look nice; but from an investment perspective, I question how wise that really is because I am always focused on when it comes time to sell the home.  You want to attract as many potential buyers as possible.  So stick to tiles and flooring that will work for most people.  You can get bold with paint colors and or other décor that are easy to change.  Buyers can deal with those kinds of changes because they are not incredibly expensive; but changing out tiles and flooring is very expensive. 

So, it could make sense to borrow money to do a major renovation particularly if you plan to live in the home for at least 5 more years.  But, remember the market is crazy right now with prices that may not be sustainable.  Try not to have total debt on your home of more than 70% of its current value so that if the market goes down and you have to sell, you will not owe more than the home is worth. Think ahead.  Be smart about your decisions.