Renos: Good or Bad Debt for Your Home?

Last week, we looked at how to purchase a fixer upper home. But what happens when you already own your home and you realize you need to change a few things. Improvements are always a big decision, what should you renovate? Is it worth it when you sell your home? How do you finance them?

Chances are you already have enough equity in your home to pay for renovations. But before you increase your debt, consider whether it’s good debt or bad debt. While bad debt is used to make a purchase that depreciates, good debt is used to make an investment that rises in value.

In the case of renovations, bad debt would fund improvements that have no value to future buyers. Whereas good debt would add convenience and pleasure today, while increasing your home’s value tomorrow. By opting for good debt, the interest you pay on your equity loan can be more than covered by the increase in resale value.

Improvements to kitchens, bathrooms and outdoor living space offer the highest return on investment. Here are a couple of things to keep in mind:

  • In general, the more recent the improvement, the higher the return on investment.
  • The most appealing kitchens have an open plan with island, and an efficient triangle between the refrigerator, stove and sink.
  • Adding a deck increases the apparent floor space of your home. Make outdoor and indoor space blend seamlessly by using French doors and indoor-style light fixtures and furnishings.

By renovating strategically, your improvements can pay for themselves, plus create a healthy profit! Curious as to which improvements would add the most value to your home? Talk to a realtor today.  

Kent Braaten

Kent Braaten

CENTURY 21 Fusion
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