About the only thing that everyone can agree on when it comes to home renovation – whether it’s a leaky ceiling repair or an ensuite overhaul – is that renos never go quite as you expect. Fortunately, there are a few steps you can take to make sure your next project comes together smoothly, and that you and your home are protected in the event of a problem.
Before you start, know your renos. The Canada Mortgage and Housing Corporation (CMHC) divides renovations into three categories: lifestyle, retrofit, and maintenance and repair.
Maintenance and repair might not pay off in terms of appearance (the category includes projects such as eavestrough replacements and roof repairs), but they should be your top priority. Keeping your home in a good state of repair is the best way to protect your investment.
Retrofits are upgrades to your home’s shell (insulation, siding and windows) and mechanical systems. You might be surprised by the financial return of these kinds of upgrades. According to Natural Resources Canada, a high-efficiency gas furnace, with seasonal efficiency (the percentage of heat output that reaches your living space) of 90 to 97 per cent, compared to 80 per cent for standard-efficiency furnaces, will pay for itself over time by lowering energy bills.
Lifestyle renovations are those that improve your home for daily living; for example, converting unused attic space into a living area or adding an entertainment room for pleasure. These can substantially raise the value of your home if you do them right.
Visit the Bank
Unless you gave up lattes and vacations 10 years ago, you may not be able to pay for your reno with available funds. Ken Wallis, manager of customer sales and retention at Bridgewater Bank (a fully owned subsidiary of AMA) in Calgary, says one renovation financing option is a home improvement loan, which generally has a one- to five-year term. However, “depending on how much you want to borrow, the monthly repayment on these loans can be costly compared to other options,” he says.
So, if you’re planning to spend more than $15,000 on your renovation – perhaps a basement redesign is in your future – a home improvement loan probably isn’t your best option. Instead, consider applying for a line of credit. There are two types available for home renovations: an unsecured line, which is based primarily on your credit rating; and a Home Equity Line of Credit, which is secured against the title of your property. A line of credit gives you access to a specific amount of money, and you only pay interest on the portion you use. It also offers flexible repayment options, as opposed to fixed monthly payments.
Wallis says you can also access the equity in your home by re-mortgaging, or by taking out a second mortgage. If you’re looking at a significant renovation, you may have more equity than you thought, because the project may ultimately raise the value of your home.
“Lenders will look at the cost of materials and labour, and do an appraisal,” says Wallis. “They will use the overall cost of the renovation and its effect on the value of your home to determine your equity position.” So you might be able to turn your bungalow into a two-storey after all. Whether you should is another matter.
Renovate for Resale
Thinking of absorbing that small fourth bedroom into your master bath or replacing your cramped powder room with a butler’s pantry? Don’t be hasty. Even if certain changes would make your abode more functional for your own family’s use, they could actually hurt your ability to sell.
There are few hard-and-fast rules about the payoff of individual renovations because resale value is so dependent on the location of the house. That enlarged master bath might backfire in a family-friendly neighbourhood, but it could be a home run in an area popular with empty nesters.
The Appraisal Institute of Canada (aicanada.ca) offers an online guide to help homeowners calculate the average return on a renovation project. Kitchens and bathrooms, for example, are considered solid investments, with a 75 to 100 per cent return. Swimming pools, not so much: expect a return as low as 25 per cent.
Even if you think you’re living in your “forever home,” most experts will advise you to keep resale in mind. Just like renos, life tends to throw curve balls that can alter your plans.
Get it in Writing
One of the most important decisions you’ll make is who will bring your vision to fruition. Your local government office can help you find reputable renovation professionals. The City of Calgary, for example, requires contractors to hold a valid business licence, and it has the authority to revoke a licence if necessary. Most municipal governments have resources listed on their websites, as do CMHC, the Canadian Home Builders’ Association and the Better Business Bureau.
When you’re looking for a contractor or designer, seek referrals from friends, family, neighbours and co-workers. Ask every candidate for a detailed estimate in writing (but remember that this estimate is not a contract – you’ll have to get that in writing as well, once you’ve chosen the contractor). Service Alberta’s website (servicealberta.gov.ab.ca) has information on what to look for in a contract.
Once you’ve hired someone you trust, make sure you go over the fine print and know what you and the contractor are each responsible for – those pesky permits, for instance.
Before you do any work at all, go to your municipality’s website to do some research, and then be prepared to phone the appropriate department to get more details about whether your project will require a permit.
In general, all you can do without a permit is paint, decorate or make simple repairs. To illustrate just how careful you have to be, the City of Calgary leaves no room for confusion: its website states that permits are required to “repair, alter or make additions to an existing building or structure.” If you proceed without a permit, there can be steep financial penalties, and you could be required to undo the work.
Call Your Insurer
So now you have the available cash, the permits and a plan of action. But before the hammering starts, you need to call your insurance agent. If you’re embarking on wide-scale renovations and won’t be living in the house full-time, you may need a course-of-construction insurance policy. This covers fire damage, vandalism and other losses that can occur during construction.
Also, you’ll need to have the work inspected to make sure it has been done to appropriate standards. “But if you hire someone, you have the right to assume they are doing it correctly,” says Diane Lennie, administration manager for AMA Insurance. “And you must ask the people you hire if they have insurance, because if they do make a mistake, you want to be sure there is something to claim against.” (The CMHC advises asking to see a certificate to verify the contractor has insurance.)
Finally, once the project is completed, notify your insurance company so that it can assess the work and determine if the value of your home has increased. Most policies require notification within 30 days of completion, but you might want to do it sooner than that. After all, the fun part is discovering just how much your sweat has paid off in equity.