The Risks And Benefits Of Investing In Your Home

For many of us, investing in our homes feels as natural as eating or sleeping. It’s just what we do as human beings.

However, any investment you make comes with various financial risks and rewards. Get it right, and you can massively improve the value of your property. Get it wrong, and you could actually wind up losing money (not what you want).

Here are some of the things that you should contemplate if you are considering investing in your home.

Consider Your Reasons For Renovating

There are only two reasons why you would renovate your property.

You want to improve your living space or make it more functional for your family
You want to increase the value of your home more than the cost of making the changes

Ideally, you’ll find renovations that tick both boxes, but that’s hard. It’s rare to find home upgrades that actually boost the value of your property by more than that cost. Usually, there’s a use factor built into the price, meaning that the savings you get are proportional to the benefits you receive.

There are some exceptions, though. Swapping out a broken furnace for one that works often increases the sale price of the home more than anything else. You can also increase property values dramatically by improving the air conditioning. If yours is broken, find a trusted AC repair provider to get it up and running again.

Suppose for instance you spend $40,000 on renovations to your home and increase the value by $60,000. That means that you’ve just increased your net worth by $20,000 without actually having to do anything.

However, you need to be careful. Many home renovation projects have nothing to do with making a positive return. Instead, they’re all about making a property more luxurious or prestigious. People want to take pride in where they live, not be stuck surrounded by four walls they dislike.

Should You Borrow For A Renovation?

Borrowing to invest in a renovation has both upsides and downsides. The positive is that you can enjoy living in your new property right away. You can make it more functional, and livable, and feel happy that you’re doing better than your friends.

On the downside, borrowing for a renovation can lock you into debt. What’s more, the value of homes can actually fall over the long term, leaving you in a situation where you have more outstanding debt on your home than it’s worth. Therefore, you’ll want to consider long-term market dynamics in your area before taking the plunge.

Don’t Fool Yourself

Many people like to fool themselves that they are making investments in their homes for the sake of their future financial health. However, when they are really honest with themselves, they see that it is all about their vanity projects. They don’t really care about long-term financial wellness. Ultimately, it was just conspicuous consumption.

Of course, it’s totally up to you about how you spend your money. But just remember, home renovations are expensive and even if you make improvements, you may never get the money back.