In the past, homeownership was a multi-step journey. A young family’s first property was usually quite modest – a way to get into the market and build up some equity before upgrading to a larger pad. Many homeowners would go through several increasingly nice properties before finally settling on their “forever home.”
But nowadays, in the red-hot Toronto real estate market and other desirable Canadian cities, a growing number of homeowners are choosing to stay put and renovate instead of upgrading to new digs. Land transfer taxes are becoming increasingly burdensome and the prevalence of bidding wars makes the prospect of re-entering the market seem daunting for many.
A 2016 poll by CIBC found that Canadian homeowners were expecting to spend, on average, $13,017 on renovations last year – up from an average of $12,293 in 2015. Of the 2,129 Canadian homeowners polled in the online survey, 37 per cent said they were planning to renovate their properties in 2016.
Here are a few things to keep in mind if you’re trying to decide whether to renovate your home or get back into the Toronto or Vancouver real estate markets.
Be Mindful of Costs
Whether you’re buying and selling or making some improvements, experts say it’s important to figure out what your costs will be.
Buying and selling a home comes with many hidden costs that are likely to wipe out any of the profits you would otherwise make on the sale of your property. Everything including real estate commissions, land transfer taxes, legal fees and even moving costs needs to be factored in.
If you opt for the reno route, Barry Gollom – CIBC’s vice-president of mortgages and secured lending – says it’s crucial to have a good sense of how much the project is going to cost. Only 34 per cent of those planning to renovate had a budget laid out, according to the CIBC poll.
“It is easy to lose control of your spending if you don’t have a detailed and comprehensive plan,” Gollom said in a statement.
Gollom also recommends building in a buffer for potential cost overruns and other surprises.
Choose Your Projects Wisely
If you are opting for a renovation instead of an upgrade, realtors say it’s important to choose your projects wisely. Some renovations will boost your home’s value more than others – which could make a difference if and when you do eventually decide to sell.
David Florida, a Toronto-based realtor with Royal LePage Signature Realty, says upgrading the flooring or the kitchen are typically safe bets. Finishing the basement if it isn’t already finished, or turning it into a rental suite, is another easy way to increase the home’s value.
But don’t bother with a pool, says Florida. Many homebuyers find them to be an expensive headache.
Related Read: 6 Renovations That Will Decrease Your Home’s Value
Renovating your property can also have a positive impact on neighbouring properties, says Florida.
“Improving the value of one home increases the profile of the street, even if the effect is marginally small,” he says.
“Neighbours like to keep up with the Joneses as well, so when one homeowner renovates, others nearby often follow suit.”
Get It In Writing
The quality of the work done matters as well. You’re unlikely to get good return on your investment for a shoddily done reno job.
If you’re planning on hiring a contractor, the Canadian Home Builders’ Association says it’s important to have a written contract to protect you in case things don’t go as planned. While some contractors may offer a discount if you agree to pay in cash, an under-the-table deal leaves you with no recourse if the job is poorly done.
