Your home is the place you relax, enjoy family and friends, and make memories. For most Americans, it is also their biggest asset and, to some extent, should be evaluated as such. Here are a few other tips for increasing value in your home and getting a better return on your investment:
- In the beginning of a conventional mortgage, most of the payment goes toward interest. You can level the playing field by adding more to your monthly mortgage payment. For example, if you have a $400,000 mortgage at 4%, your payment will be $1909. Because of the interest, that thirty-year mortgage will actually end up costing you $687,478. If you voluntarily pay an additional $300 a month toward principal, you shave almost seven years and $73,372 from your mortgage. An extra $500 every month saves you almost ten years and $103,901.
- Refinancing at a lower rate can be a good move; however, mortgage closing costs typically can run a few thousand dollars. Figure out how long it will take to break-even on your refinance and make sure you intend to stay in your house that long. Also, be aware that even if you are getting a smaller loan at a lower rate, a new mortgage restarts the clock and, once again, a higher percentage of your payment will be going toward interest.
- Not everyone can afford to make extra or over payments to their mortgage. If the mortgage and the expenses associated with your home are an increasing burden, see if you can cut back and/or find ways to reduce your utilities. If you are still struggling to make ends meet, you may need to consider downsizing. Once you are in a distressed situation, it can be more difficult to sell your property. You should also communicate your situation with your lender and see if they will work with you.
- Utilities may not be a major expense, but they do add up. A few tips include checking the insulation in your attic and installing ceiling fans and a programmable thermostat. Wrap exposed water pipes and make sure you don’t have any running toilets or leaks. Replace air filters on a regular basis and make sure your vents are unobstructed and free of dust. If possible, install LED lights and energy efficient appliances…Even if you have to pay more in the beginning, they will save you money over the long term.
- Keeping up with home maintenance is an endless, but important task. Small issues can turn into big ones when they aren’t addressed. The more issues that are delayed, the more overwhelming and expensive they can become. When you do go to sell, buyers do not want to take on a project they have to fix up just to move in. Use quality repairmen to do the things that keep your house looking good and working efficiently.
- Make sure your home is properly insured. It doesn’t matter as much how much your house is valued as long as the insurance can cover the cost to rebuild it. (Remember, that does not include the land the house is on). It is also a good idea to have some liability insurance – just in case.
- When remodeling, you should do what fits your functionality and personal style. That said, it is good to make sure any major changes will appeal to a wide segment of the market. It is also easy to overspend on renovations. Be aware of what home values are in your area and don’t go beyond the price ceiling. Just because you spend a certain amount, it doesn’t mean you will get it back when it comes time to sell.
- If you’ve lived in your home for two of the last five years, joint filers have a $500,000 capital gains exemption, single filers have a $250,000 exemption. If you are fortunate enough to make more than that, home improvements can also be counted toward reducing the tax basis of your home. That’s why it’s important to keep receipts for that kitchen renovation if you think you may go over that capital gain exemption.
- There are several tax breaks available for homeowners. Obviously, you can deduct the interest portion of your mortgage payment. Even if you don’t itemize, you can still make a $500 (single filers) or $1000 (joint filers) deduction for property taxes. Energy efficient homes, home office and moving deductions are all ways to further reduce your tax bill. Consult an accountant to make sure you are taking advantage of all the possibilities.
- If you need to move but do not want or have to sell, you may consider renting your home. This typically requires hiring a property manager who charges around 10% of your property’s income. Before going too far down this road, you should figure out what kind of return your will be getting on your rental home. After calculating your net-income, you can decide if it’s worthwhile to rent. Airbnbs and short-term/vacation rentals have become popular and can generate big returns. They can also come with greater maintenance and possibly more local restrictions.
There are many more tips and strategies for enhancing the value of your home. As always, feel free to get in touch with me if you have any questions about your home or the real estate market.