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)
"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!
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!
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!