NJ Money: Which home upgrades help when you sell?

Spring is near and that means homeowners will be itching to tackle some improvements.

If you’re making changes to your home simply to enjoy the upgrades, that’s great. But remember that should you sell that property someday, you may not get back the money you spent.

“Somewhere down the road, someone else will be buying the house,” says Jim McCarthy, a certified financial planner with Directional Wealth Management in Rockaway. “Strong personalizations — color scheme, choice of materials, shape, etc. — could be a turnoff to future buyers.”

BIZ BRAIN

Q | My landscaper offers a 10 percent discount for paying the whole season upfront. Is it worth it? The monthly bill is $175 and it covers seven months.

— Seeking discounts

A | It all comes down to the math. Payments for seven months, at $175 per month, totals $1,225. Ten percent of that is $122.50, so if you take the discount, you’ll be paying $1,102.50.

“If you decline your landscaper’s offer, you will have the use of part of your money over that seven months,” says Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown. “I say ‘part of your money’ because you would start out with $1,225 and, every month, you will be paying out $175. By the end of the seven months, you would have zero.”

So, we need to see how you can earn $122.50 over that seven months, Kiely says. To reach that goal, Kiely says, you’d have to find an investment that pays out 40 percent on an annual basis, or 3.333 percent per month.

Why so much? “You would need 40 percent because you would have a declining amount of principal each month,” he says. “You would have $1,225 at the beginning of the first month, but only $1,050 after you paid the first $175 payment.”

So to further the math: You would earn $34.97 the first month ($1,050.00 x 3.33 percent). After the second month, you would pay out the next $175 and have $875 left. You would earn $29.14 ($875 x 3.33 percent) the second month. In all, you’d earn $34.97; then, $29.14; then, $23.31; then, $17.48; then, $11.66; finally, $5.83 — to nearly equal the $122.50 needed.

“But where can you find an investment that pays 40 percent per year?” Kiely says. “I say pay the landscaper $1,102.50 now and keep the $122.50.”

 

He says consulting with a home decorator or stager could be worth the small investment in order to get professional advice on “what sells.”

Also remember that your return on investment will vary depending on the project, the geographic location and the size of the home.

For example, adding central air conditioning in California will have a bigger return on investment than it would in Maine, McCarthy says.

Another example: Finishing a basement in a small home could potentially double the living area, while the same project in a larger home might have less of an impact.

WHAT WORKS, WHAT DOESN’T

Updated kitchens are worth loads of money, says Marie Gentile, a broker associate with Keller Williams Realty West Monmouth in Morganville. “New appliances and granite counters add lots of value,” she says.

You also can get a great deal of your investment back by installing hardwood floors, which continue to be very popular, Gentile says. As for the color — the darker, the better, she says.

If you already have hardwood under your carpets, Gentile says, get rid of the rugs. You don’t necessarily need to have the floor refinished, but this can show prospective buyers what you have to offer.

There are also improvements that aren’t worth the cost, Gentile says, such as installing a pool. “It can cost upward of $50,000 and it only brings about $10,000 to $12,000 in value,” she says.

Another feature to avoid is popcorn ceilings, also called stucco ceilings. If you already have them, Gentile recommends getting rid of them.

INSIDE AND OUT

Making your home attractive doesn’t have to cost a bundle.

Think curb appeal.

“Curb appeal is everything. Make sure your landscaping is clean and neat. Trim bushes and have the lawn cut and edged,” Gentile says. “A freshly painted front door is key.”

Also avoid adding wallpaper or borders, she says. Or just get rid of the ones you already have.

“People see that and think work, work, work,” Gentile says.

Instead, a fresh paint job is an inexpensive facelift.

There are other actions that sellers can take to spiff things up, without a headache or a large bill, such as a deep cleaning of the house.

“A house that shows clean and smells good sells quick,” she says. “Clean moldings and get into the corners.”

HOW TO PAY?

Before you start any upgrades — especially if those changes won’t mean a potentially higher selling price — take a look at your finances.

If you don’t have cash for the upgrades, remember that any financing costs should be considered part of the overall cost of a project.

Turning to home equity is a popular idea.

You could apply for a home equity loan, or a home equity line of credit (HELOC). You will need to meet income/debt ratios to qualify, but the interest rate will probably be reasonable, McCarthy says.

But spend carefully.

“Your home is not a piggy bank,” he says. “Money you borrow against your home will need to be repaid.”

McCarthy says home equity loans are just that — a loan. You borrow a set amount and you will start repaying both the principal and the interest immediately.

Home equity lines of credit are different and act as a revolving account.

“This means you qualify for (a set) amount of credit, which you can borrow and repay, and reborrow during the life of the line of credit, similar to a credit card but secured by your home,” McCarthy says.

He says home equity loans are best used for major upgrades, while HELOCs are a good option for smaller projects undertaken over time.