How to Invest in Your Home

Photo by Paul McGowan via Pixabay

Already a homeowner? Planning to sell in a few years? Sometimes the most sensible investment on the table is the property you already own.

Why Invest In Your Own Property?

Some investors think of each residence as a sort of long-term flip: buy a home, live in it for a couple of years to avoid capital gains tax, improve it as they have the capital and inclination, and turn it around for a profit when they're ready, usually 3-4 years later. And for a huge number of millennials, moving every few years has become de rigeur: occupy a home for a few years, then follow the job market wherever it takes them. Today's young professionals are often on the move.

Whether the long-term flip lifestyle appeals to you or not, it makes sense to improve your home's value as much as possible while living there--especially if you're looking to sell in the next few years. 

Fix What's Broken 

Step 1 is the least appealing item on our list, but it's probably the most important. Before you renovate the kitchen, install crown molding or hire a landscaper to work their magic on the yard, you need to fix what's broken.

Hit it all in this step--both large things and small. Make sure your electrical systems are up to code. Non-GFCI outlets in the kitchen or bathrooms? Replace them now. Gutters falling apart? Take care of it. Water heater has just about the same capacity as your kitchen sink? Replace it. Basement drainage issues? Fix them. Make a checklist of known issues, both big and small, and work through them. Your family will thank you, and your future self will thank you. 

Consult Professionals 

This is where it comes in handy to have a home inspector on your Christmas card list, but it's not necessary. If you live in an older home and/or don't have much experience with home repairs, consider paying a home inspector to come in to do a walk-through and give you advice on things that need to be addressed.

A home inspector will be able to tell you what could become an issue during the inspection process once you have an offer on your home. You might not choose to address everything on their list, but you'll have an idea of a place to start--and an idea of the most pressing issues you're dealing with. 

Don't Over-Invest

Before pouring your money into upgrades, make sure you know that cap rate for the homes in your neighborhood. There's a point where upgrades just stop paying off, and you don't want to exceed it. Instead, look at comparable homes on the market on your street or in your neighborhood. Go to a few open houses, even. Get a feel for the minimum standards that these homes meets.

Hit the Minimum Standards for Your Area

In some neighborhoods, a dirt yard is totally normal and not necessarily worth improving (unless you just want to). In other neighborhoods, you'll be expected to have sleek new stainless steel appliances at a minimum. This is a great starting point. Bring your home up to or just above minimum standards, because that's what buyers will expect. 

Kitchens, Bathrooms, Flooring & Paint 

As you've probably heard, investing in the kitchen and bathrooms almost always pays off. It probably goes without saying, but if you're planning to sell soon, don't invest in personal-preference renos--like rearranging the kitchen (unless it's a major dysfunctional problem) or building in a new fireplace. Instead, update/upgrade what's already there. Upgrades that can make a huge difference include: 

• Having cabinets painted/refinished and hardware updated
• Reglazing kitchen or bathroom tile to bring its look into the present century 
• Replacing flooring with the standard for your neighborhood
• Finishing a partially-finished basement or loft space 

Throughout the upgrade process, keep the style neutral to appeal to the widest variety of homebuyers. Love bold wall colors? That's fine, but unless you live in a remarkably artsy, hipster neighborhood, plan to paint a toned-down gray or beige before you put your home on the market.

If you're on the fence about paint and flooring, those are projects that can be put off until right before you move out. They're also the two most powerful ways to transform your home's aesthetic. 

Obviously the changes you make will have everything to do with the projected sale price--and the caps for your neighborhood. All improvements should take this into consideration, and you'll be off to the races when you decide it's time to put your home on the market.