Home and cottage renovations make them pay
Perhaps the renovation bug has bitten you and you're considering upgrades to your home or vacation property. If so, wouldn't you like to know how to make your renovation choices pay off down the road? Is that a 'yes'? Well, then here's some reno info that could help.
At home renos that pay and renos that don't
If you're intending to live in your home for some time, you should always choose the renos you truly want instead of basing your selections on those that will deliver the best return on resale. Even so, some renovations can pay off better than others at resale time.
The cheap champ of payback is a simple paint job. Neutral colours are best. Next in line are kitchen and bathroom renovations that will typically get back almost dollar-for-dollar what you put into them. A finished basement rec room is nice, but if you have a main floor family room you'll be lucky to get 30 cents on the dollar for your basement reno. Landscaping can pay off if a potential buyer likes it but who can judge another person's taste? Upgrades such as a new heating/cooling system or windows may be necessary to make a home livable or saleable, but the odds are you won't recover the cost on resale.
The most expensive of all big-ticket renovations is an addition. Adding a main floor family room is likely a good idea that's where families like to congregate these days. More bedrooms are often a bonus, but merging two bedrooms into one to create a larger space say for a home office -- may limit your resale opportunities. A new or renewed garage can deliver payback of up to one hundred percent, especially if it enhances curb appeal.
The trouble with major additions is that homebuyers often don't see the true value in them. You'll put a lot of money into infrastructure wiring, plumbing, duct work and so on that buyers can't see, so recouping the full cost of an addition can be extremely problematic.
The biggest money-losing renovation of all is an in-ground swimming pool. Buyers often don't want to worry about maintenance or the safety of kids or pets.
At the cottage keep track to avoid tax
With the cost of recreation property spiraling ever upward, you're likely to recover the cost of almost any renovation but you could end up losing that advantage in taxes. Here's why:
- When you sell your property or pass it along to your kids you'll be required to pay capital gains tax on the increase in the property's value. For example, if you paid $100,000 for your cottage and sold it for $140,000, the $40,000 increase in the property's value is a capital gain and 50% of the gain is subject to tax.
- But, if you can prove that much of the increase in value is due to improvements you made to the property say you spent the $40,000 to build an addition the cost of improvements is added to the original $100,000 purchase price and the resulting amount known as the adjusted cost base (ACB) is used to calculate the capital gain. In this example, your capital gain would be reduced to zero
- To qualify as a capital improvement, the costs you incur must improve the property beyond its original condition renovations such as an addition or permanent structure like a dock, deck or cabin. Repairs, such a re-shingling a roof or replacing rusted water pipes, don't count. To validate your claim be sure you hang onto every receipt showing what you paid for material and labour.
Paying for your renos
Whatever happens down the line, and whether you do the renos yourself or hire a professional, one thing is certain: you'll have to pay for them. Your financing options include establishing a secured or unsecured line of credit, re-mortgaging, or taking out a loan. Your Investors Group Consultant can help you determine which financing option is best for you.
--------------------------
This article, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.
© Copyright 2007, Investors Group. All rights reserved. Do not reproduce without the express written consent of Investors Group.
