Real estate is considered an excellent investment. Generating rental income, earning a profit from reselling, and diversifying your portfolio are just some of the numerous benefits of buying property. Play your cards right, and real estate investment will build your wealth.
You’ll usually see your investment appreciate over time by choosing a strategic location. If you’re looking for a way to speed up the process, undertaking home improvements has probably crossed your mind. When done right, renovating your property can increase your home’s value. Appliance upgrades for energy efficiency, patio additions with beach umbrellas, and closet remodeling that create an organized home are examples of improvements that yield a great return on investment.
The Cost of Home Improvement
Before diving into the different financing options to fund your home improvement, first, determine your budget based on your cost of living. Renovations typically cost around a lot per square meter but keep in mind that your actual total will still depend on several factors. This figure is still likely to change based on the total room size, the materials you want to use, and the contractor you’re getting.
It’s essential to make a list of the improvements that you want from the very beginning. It’s easy to get carried away and renovate more than you need to, but itemizing your priorities helps avoid overspending.
Funding Home Improvement
Once you know approximately how much your renovation will cost, it’s time to plan how to fund it. Here are five ways to finance your home improvements:
- Personal Savings
- Pros: Debt-free renovation
- Cons: Longer wait time before undergoing the renovationIn financing home improvements, paying in cash is considered by many to be the best route to take. By doing so, you avoid debt and lending interest rates. If you don’t have enough cash, saving up for that renovation project might be wise, especially if there isn’t an immediate need. This approach gives you time to decide what you want without worrying about taking on a loan.
To reach your goal, try a savings strategy. There are different challenges online that help you grow your account quickly and consistently.
- Credit Card
- Pros: Simple and quick to process as long as you have an existing credit card
- Cons: High interest rates and relatively short installment periodsIf you’re looking at modest repairs and upgrades that need to be done right away, you can finance your home improvement using a credit card. Consider your credit limit and your bank’s installment policies. If available, use one that offers a 0% installment plan spread over a period that works for you. Keep in mind, though, that credit card companies generally allow shorter periods to pay back the loan, so budget your money carefully.
- Personal Loan
- Pros: No need to put up collateral
- Cons: Higher interest rates and lower maximum loanable amounts compared to other loan optionsThis loan type can be put towards numerous personal needs, like travel, tuition, and home renovation. It is generally simpler to secure than other types of loans since it’s possible to get one without collateral. Do note, though, that when getting an unsecured loan or a loan without collateral, interest rates are higher than secured ones.
- Home Equity Loans
- Pros: Lower interest rates compared to credit card payments and personal loans
- Cons: Because your property is collateral, there is a risk of foreclosure if you fail to payUnlike personal loans, home equity loans require you to put up collateral, specifically your property. The bank lends money based on your equity or how much of the house you own or the property’s current market value minus the mortgage amount owed. Once approved, you get a lump sum upfront that you repay monthly. Compared to credit card installments, home equity loans give you a much longer time horizon.
- Refinancing Loan
- Pros: Can provide better payment terms than your original mortgage
- Cons: Approval isn’t guaranteed and may come with closing costs for your original mortgageA refinancing loan entails taking out a new mortgage to pay for the one you currently have. In effect, the terms of your mortgage change, too, making this an attractive option. Reasons for choosing a refinancing loan include getting lower rates than your original mortgage or changing the terms of your loan from an adjustable-rate mortgage (ARM) to fixed-rate and vice versa.
Refinancing can fund your home improvement project when you avail of the cash-out option. Depending on the current market value of your real estate and how much equity you have in it, it’s possible to get a lump sum that you can put towards improving your home.
Choosing the best way to fund your home improvement
No option is perfect as each comes with its own set of advantages and disadvantages. At the end of the day, the best way to finance your home improvement project depends on what works for your situation.
Prioritize your list, and don’t go overboard. A well-planned renovation will increase the value of your real estate investment.