This post: ways to think about the cost of "improving" your house. (FYI: I moved the SOFF newsletter to Substack and changed the title to Douglas' Money and Meaning)
Nice post, Douglas. I bought a home last summer and have been contemplating various things that could be done. However, ultimately, I decided not to do much of anything to it. I can get the carpet to go another 3 years out of it if I have it restretched ($250) versus replacing it ($3500). And I’ve really been questioning all the waste I’m seeing around me as people remodel with wild abandon. So much remodeling here in colorado. Nobody seems to move on and take a house as it is. It seems like a new consumer trend. And my house is just fine and very comfortable- I’ve painted 5 closets and 4 rooms and it’s cozy and safe and warm. Do I love the dark floor? No, it’s a pain to clean. But I don’t want to rip out perfectly good flooring just because it’s kind of a job to clean. Is the refrigerator kind of old and not super attractive? Yes, but it works and someday it will break- I will replace it then. I’ve settled there…
Yes, budget for O&M and extend the life of your belongings. I need to do a better job on regular maintenance of things myself: cleaning filters etc. Congrats on buying a home, Carly!
"After taxes and all their expenses, how much are they saving/investing per year? They saved $30,000 a year. I told them that a $90,000 home improvement, if it increases your home value $30,000, means working 2 more years of their lives. " Maybe not that simple. Aren't there a few other scenarios that might play into this. If your friends sell their house after the improvements and before the note/refinance is paid, then it will not necessarily cost the 2 years, and may make them more money on the house sale. As long as they live stay in a house for a minimum of 2 years - no capital gains. It seems like there is an opportunity to build wealth through improving and moving (not "flipping" because of the 2 year minimum).
Let's say you have a house worth $500k you have $200k in equity in the house, meaning you have $300 in mortgage. You take a home equity loan of $90k and after renovations, your house now is valued at $530k. You will have $390k mortgage on a $530k house. If you sell, you only get $140k out (minus the realtor fees). You've lost $60k in equity, which is two years of personal profit ($30k a year in my example), meaning two more years of work. Am I missing something?
let's say you have a house worth $500k and invest $90k, due to the improvements (maybe some would have been required by purchaser anyway-roof), your house is now worth 650k, was the investment worth it? It all depends on the numbers, the ROI, and how smart/lucky the investment. BTW, in the last 2 years in PDX this is not an unrealistic scenario. Thought you still have to live somewhere. Am I missing something?
Right, that works! But most renovations do not return more than the cost of them. If you have a renovation project that does, it totally makes financial sense to do!
Nice post, Douglas. I bought a home last summer and have been contemplating various things that could be done. However, ultimately, I decided not to do much of anything to it. I can get the carpet to go another 3 years out of it if I have it restretched ($250) versus replacing it ($3500). And I’ve really been questioning all the waste I’m seeing around me as people remodel with wild abandon. So much remodeling here in colorado. Nobody seems to move on and take a house as it is. It seems like a new consumer trend. And my house is just fine and very comfortable- I’ve painted 5 closets and 4 rooms and it’s cozy and safe and warm. Do I love the dark floor? No, it’s a pain to clean. But I don’t want to rip out perfectly good flooring just because it’s kind of a job to clean. Is the refrigerator kind of old and not super attractive? Yes, but it works and someday it will break- I will replace it then. I’ve settled there…
Yes, budget for O&M and extend the life of your belongings. I need to do a better job on regular maintenance of things myself: cleaning filters etc. Congrats on buying a home, Carly!
Thanks, Douglas!
"After taxes and all their expenses, how much are they saving/investing per year? They saved $30,000 a year. I told them that a $90,000 home improvement, if it increases your home value $30,000, means working 2 more years of their lives. " Maybe not that simple. Aren't there a few other scenarios that might play into this. If your friends sell their house after the improvements and before the note/refinance is paid, then it will not necessarily cost the 2 years, and may make them more money on the house sale. As long as they live stay in a house for a minimum of 2 years - no capital gains. It seems like there is an opportunity to build wealth through improving and moving (not "flipping" because of the 2 year minimum).
Let's say you have a house worth $500k you have $200k in equity in the house, meaning you have $300 in mortgage. You take a home equity loan of $90k and after renovations, your house now is valued at $530k. You will have $390k mortgage on a $530k house. If you sell, you only get $140k out (minus the realtor fees). You've lost $60k in equity, which is two years of personal profit ($30k a year in my example), meaning two more years of work. Am I missing something?
let's say you have a house worth $500k and invest $90k, due to the improvements (maybe some would have been required by purchaser anyway-roof), your house is now worth 650k, was the investment worth it? It all depends on the numbers, the ROI, and how smart/lucky the investment. BTW, in the last 2 years in PDX this is not an unrealistic scenario. Thought you still have to live somewhere. Am I missing something?
Right, that works! But most renovations do not return more than the cost of them. If you have a renovation project that does, it totally makes financial sense to do!