Renovate or RRSP?
Author: Sound Choices
June 28, 2018
The content in the below article is meant for Canadian investors only.
In this series of articles, we discuss how investing in real estate over equities is not as black and white as many people would believe. Today’s article addresses renovations – was the cost worth it?
Canadians spent nearly twice as much on renovations as they contributed to their RRSPs
In 2016, Canadians spent $31 billion more on home improvements than saving for retirement* – the average RRSP contribution was just $3,000, while the average renovation cost was $13,000.
Myth: Renovations are an easy way to boost the value of my house
Why do so many Canadians use their money for renovations at the expense of saving for their retirement?
Because they think that it will provide a stronger return on investment.
Reality: Renovations don’t always pay off
Renovations can improve your lifestyle, but not necessarily boost the value of your house. Even so, many people spend $50,000 to $100,000 on renovation projects thinking they’ll get it all back, and possibly more, when they sell. They may – but not every renovation pays off.**
|Furnace or heating||50–80%|
|Addition / basement reno||50–75%|
|Doors and windows||50–75%|
|Add swimming pool||10–40%|
Reality: The value of renovations depreciate
The chart above is something that many renovators live by – and if you’re fortunate, the renovations will appreciate the value of your house as stated.
Keep in mind, however, that improvement values only apply for a limited time – think avocado bathrooms. Tastes and styles change.
That avocado bathroom renovation from 40 years ago will likely be out of date, and a future renovation from a prospective buyer will be priced into the value of your house.
Talk to your financial advisor today about how real estate investing fits in your overall portfolio. And stay tuned for the next instalment in this series.
*Sources: Statistics Canada, 2016, Retirement Savings Plan contributions, Financial Post, Renovation spending to hit another record in 2017, but pace finally starting to slow.
**Source: Return on renovation costs: How much will you get back? http://www.century21.ca/justin.lepore/Blog/Return_on_renovation_costs_How_much_will_you_get_back_212236.
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