With Terry Story, 28-year veteran Real Estate Agent with Coldwell Banker in Boca Raton, FL
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Home Improvement Return On Investment
Let’s say I’m thinking about selling my home and want to fix it up first, or perhaps I’m just looking to take on a new home improvement project for my own enjoyment, what kind of return on investment can I expect for different projects?
Terry, referencing a study by the Appraisal Institute, says that smaller projects offer the best “cost to value” ratios. Many projects fail to meet the criteria because they’re too expensive—a full kitchen remodeling where you replace all the cabinetry, for example, is both costly and may not even be desirable to prospective buyers. On the other hand, not all expensive improvements are a bad investment. Attic installation, for example, is seen as a good source of ROI, at least in parts of the country where attics are still considered a near essential. But the majority of improvements they suggest are on a smaller scale, though they may have an outsized impact on the design and use of space in a property. Examples given include replacing wooden doors with steel doors, adding manufactured stone veneer, minor kitchen remodels, garage door replacement, and siding replacements.
Essential vs. Non-Essential Repairs And Improvements
Another important consideration is that if you want to put your property on the market and it needs a vital repair like a new roof or new storm windows installed, you should allocate funds to these projects instead of other less consequential ones. One of the best ways to deter potential buyers is to show the place with an outdated roof or without storm windows. Buyers want to have some cash available for DIY or contract projects of their own after they purchase a home, not to be stuck with a $30,000 bill for a new roof.
Moving In Retirement: Common Mistakes To Avoid
The next topic of conversation concerns mistakes that retired people make when they’re getting ready to sell their home and transition into new housing. Terry states that the first mistake is waiting too long to take action. Once a person’s health starts to deteriorate, it may no longer make sense to move. It’s better to jump on a major change like this when you’re more able and can actually enjoy your new home. She even suggests starting out decades earlier, in your 30s and 40s, by buying an income property that you rent out until it’s paid off and you’re ready to move into it. This way you avoid drawing on retirement funds to pay off the mortgage.
Terry adds that it’s important to enter retirement debt-free, including paying down your mortgage, but Steve argues that this isn’t always true. He claims that many people would be better off leaving their liquid assets—like money in a retirement savings account—intact instead of “burying” it in your house where you’d need a home equity line of credit to access its cash value. If you’re wealthy enough and have more retirement money than you really need, paying off a mortgage is fine, but if you’re working with more limited resources, don’t bury it in your house.
Terry mentions another common mistake that can occur when deeding a property to children. This is an issue people ought to consult with a financial advisor because you may create unnecessary tax bills for yourself, and you may be missing out on a $250,000 capital gains tax exclusion ($500,000 if you’re married). It’s vital to think through this and related issues thoroughly before making a big decision and to seek professional counsel to work out a plan. Also, don’t put off making these kinds of plans until your health declines or your financial resources are whittled down and options are forced on you.
Terry extends the topic further and strongly recommends that retirees do their homework about where they want to move. Ask questions about what amenities are nearby, what transportation options exist, how easy will it be to access doctors and health care resources, and whether you can you do your most important shopping close to home. Expect that you’ll be driving less over time and see if the answers to these questions still give you confidence that you’ll be able to get to all these vital spots.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent, Terry Story. Terry is a 28-year veteran with Coldwell Banker located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: I’m living in a home and I want to figure out what I could do to the property to fix it up, maybe to get it ready for sale or also to enjoy that work that I needed done. What is the top return on an investment of that kind?
Terry Story: Sure. According to the Appraisal Institute research, they find that you want to do smaller projects. For example, a limited kitchen redo. You don’t want to rip out all the cabinets and new appliances. That’s a big project, big undertaking, especially if you’re doing it to sell it. You might not even be picking the right kind of kitchen for what a buyer may want. This, again, is really cost to value ratios that they’re looking at. They claim, and this again is nationally, invest in attic installation. I guess that’s something big up north. Entry door replacements to steel doors if you have wood doors, manufactured stone veneer. Again, a minor kitchen remodel, garage door replacement, and siding replacements.
The way I look at this, Steve, I can relate this to what we have here in South Florida. I’ll give you an example. I have a house that totally needs to be gutted, and everybody that’s come in to look at it, they’re not afraid of redoing kitchens and baths, but what they don’t want to get into is having to put on a new roof and the impact hurricane windows because that’s not a fun cost. Nobody enjoys spending that kind of money to put those items on. They want to see-
Steve Pomeranz: It could be $70, $80,000.
Terry Story: It’s a lot of money. Exactly. Steve, if you’re going to spend $80,000, and again, if you’re trying to resell your house, you’re really better off putting the money towards roof and impact windows because buyers don’t want to spend the money on those items. They’d rather-
Steve Pomeranz: I don’t want to come in with a bad roof and know that I have that big expense ahead of me.
Terry Story: You want to do it on the fun stuff. You want to spend the money so you can see the results of your new bathrooms and floors and so on so forth.
Steve Pomeranz: Got you. Really interesting.
Terry Story: That’s the difference.
Steve Pomeranz: All right. Let’s move on. Let’s talk about some mistakes that retired people make when they’re getting ready to sell their real estate or to look at transitioning into a new lifestyle. Tell us about that.
Terry Story: First mistake is holding off too long to make a move. Some people will just wait too long and then it’s just not a good decision. You want to be able to do it while you’re able to. Some ideas are to actually plan way ahead, maybe when you’re in your 30s or 40s if you’re able, buy something, rent it out so that by the time you are ready to retire, it’s already paid for. You’ve not tapping into retirement funds to pay off a mortgage. Ideally, retirees should head into retirement debt-free. You don’t want to carry a mortgage with you if at all possible.
Steve Pomeranz: I think you have to be very, very careful because your retirement funds can represent your basic nest egg. As a financial planner, I can tell you that this idea of taking a modest nest egg and taking a lot of it and putting it into a mortgage is really a huge mistake, and I’m going to take a minute and tell you why. First of all, you are burying this money. If it’s now not liquid, you put it into your house, you would have to actually get a loan to borrow it back out if you wanted to. Number one, if you could actually get a home equity line of credit or something like that, you’re remortgaging anyway. That’s number one. Number two, you’re going to need your nest egg to pay for your lifestyle. Your nest egg is going to produce a certain amount of income. Plus, you’re going to be chipping away a little bit at the principle in order for you to live the life that you want to live. If it’s all buried in the house, it’s inert. The money becomes inert and it’s a big risk to you.
The bottom line is if you have the resources, you have plenty of money, you have over enough money for retirement, paying off your mortgage is fine but not if you have limited resources.
Terry Story: That’s right. I’m dealing with this right now with an elderly couple. I know it’s a big mistake. Here’s another common one. Deeding a property to your children. Again, everyone needs to be talking to their financial advisor. You may be encountering unnecessary tax bills and you may also be missing out on that 250,000 capital gain tax exclusion if you’re single or 500,000 if you’re married.
Steve Pomeranz: You get the first $250,000 of gain is not taxed, and if you’re a couple, it’s $500,000. You don’t want to give up that tax benefit.
Terry Story: Those are the mistakes, slip ups that can occur, and you just want to try to avoid them.
Steve Pomeranz: I guess the bottom line is you’ve got to think about this long and hard before you make any decisions. You got to have a plan. You’ve got to get some professional advice. Don’t delay.
Terry Story: Don’t delay until you’re in poor in health, and then you start making decisions that you would have made differently if you were better off and financially stronger than you might be later down the road.
Steve Pomeranz: That’s a good idea for lots of things in your life, not only just when you’re getting older, but if you’re looking to change careers, it’s better to try to get a new job while you have a job. You don’t really want to be in that position where you’re squeezed, and now we’re saying don’t delay. Do it while you’re healthy. Make a good reasonable decision so you don’t have factors forced upon you. That’s just smart.
Terry Story: Then think about where you’re buying a home. Think about the amenities, the transportation, the access to healthcare, how far are you from shopping. You got to think that maybe you’re going to have limited driving.
Steve Pomeranz: Doctors.
Terry Story: Doctor’s appointments. All of that should be taken into consideration well in advance.
Steve Pomeranz: Good advice from Terry Story. Terry is a regular guest on Real Estate Roundup, and she can be found at TerryStory.com. Don’t forget that you can hear Terry once again anytime actually on our website, which is StevePomeranz.com. Just look for Terry Story and the Real Estate Roundup section, and you’ll get to hear her commentary or you actually can read the transcript of our discussion. Thanks, Terry.
Terry Story: Thanks for having me, Steve.
