I’ve talked a lot on the blog and podcast about the hidden costs of home ownership. When doing a true home evaluation, many people are disappointed to find out that a house is rarely a “great investment”. When you consider the purchase price, closing costs, interest payments, taxes, and other expenses, it is expensive to own and maintain a residence.
In a perfect world, you would buy a house and never sell it. That would maximize the purchasing power of your money and provide a paid off roof over your head in retirement. However, most people do not stay in their homes that long. According to the data on mortagereports.com, the average tenure of homeowners was 10 years in 2016.
Home Evaluation Prior to Selling
One of the challenges I see is the desire for clients to spend on expensive upgrades to their home. While I certainly want everyone to enjoy their residence and get the most out of it, some have the misconception that expensive upgrades will add significant resale value to the home.
I have worked with many people who spent several thousand dollars on home improvement projects they wanted. Shortly thereafter, they decided to sell the home. They were shocked to find out that their $10,000 tile installation or their $20,000 kitchen upgrade did not bring equal value when the offers started to come in on their house. In some cases, it barely moved the needle on the sale price and they took a massive loss.
The Exotic Aquarium
It is really important to research home improvement projects. Find out which ones tend to have more positive impact on the value of your house. Some people are surprised to discover that their $30,000 pool or their built-in fish aquarium and hot tub are actually hindrances. Those items can deter a large group of buyers away from their home. If you are buying an item simply for your personal enjoyment, count the cost! Unfortunately, a lot of other people will have no interest in maintaining or using those very expensive items. If you make a commitment to that type of purchase, make sure you plan to be in your home for a long time.
Please avoid the mistake of viewing home ownership and expenditures as an “investments”. unless you are in the business of flipping homes or renting them out. Your primary residence will rarely produce a profit, especially if you do a lot of costly renovations with the hope of boosting the value. If you are compelled to sell your house, make sure you focus on key repair items that will definitely drive the successful sale of your house.
There are some items that will require attention in order to maximize your sale price. There are some things you can do prior to a sale that will maximize your chances of success. If you have a leaky basement and a leaky roof, obviously those are going to be red flags. It is likely well worth the expense to get those things fixed right away.
Talk to a Pro
I highly recommend getting a professional to do a home evaluation prior to spending any additional money. Do not be afraid to work with a solid real estate agent even if you are just thinking about selling your house. There are tons of good agents out there who will give you solid advice and have knowledge of the market you live in. They will know immediately what repairs are necessary and which ones are not worth the cost and effort. I made the mistake of repainting the first house we owned as we got ready to sell it, and my agent was kind enough to politely inform me I had just wasted a lot of time and effort. A quick conversation can go a long way.
I have a had a couple of clients mention that they pumped tons of money into their house hoping they would “fall back in love with it”, only to find they still wanted to sell it anyway. They had to learn a very hard and expensive lesson on the true value of home ownership and “upgrades”. It took some of them several years to get over the massive expenditures and money that simply wasn’t there when they sold the place.
Be Realistic During a Home Evaluation
None of the things discussed are “wrong” or “bad”. If you can afford it, and want to use your money on something important to you, enjoy it! I just want people to be aware of the true nature of the expenditures. Please make sure you count the cost. So many times with a house, emotion clouds our judgement. When that happens, we end up making rash decisions that can end up costing a lot of money.
If you get the itch to make a major home renovation, discuss it with others you trust. Talk to professionals like your financial planner, your real estate agent, and contractors. Like I mentioned, there are a lot of good people who will give you sound advice and honest feedback.
Carefully Count the Cost
The main thing with any big home expense is to make sure you are clear on your long term intentions. If you are already starting to think about your next move, be careful! It is probably a mistake to pour a significant amount of money into a costly home project. If it is one that caters to your specific tastes, it is likely to lose a lot of money.
Let common sense and honest feedback rule instead of emotion when you do your home evaluation. I hope you get enjoyment out of wherever you decide to reside. Do not allow costly home improvement projects derail your long term goals.