Funding a home renovation

Ever since the pandemic hit, the trend to tackle home renovation projects has increased. But, with a struggling economy, renovation budgets remain small.

To fund these projects, homeowners could consider several financing options or choose to save up before any work commences.

According to a report released by Euromonitor International in June 2021, the rate of growth in home improvement retail current value sales accelerated to a four-year high during 2020.

The report also stated that the economic environment is likely to remain difficult in South Africa in the post-pandemic world, which will encourage more local consumers to do home maintenance work themselves, rather than hiring professionals.

Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, explained that whenever undertaking a home renovation project, the resale value of the home should always be a consideration.

“Even if the homeowners have no intention of selling in the near to far future, it is always advisable to consider how the renovation could impact the resale value of the property. Shoddy workmanship could have a negative impact on the home’s value. Similarly, homeowners might never stand to make their money back if they have overcapitalised on renovations,” Goslett warned.

To avoid overcapitalising, Goslett recommended having a real estate practitioner provide a professional evaluation of the property and suggest some guidelines around the potential price cap on the given suburb.

Once the project has been decided upon, there are several ways in which a homeowner can fund a home renovation.

The first is simply to save up until the homeowner can afford to tackle the project.

“If in a hurry, instead of contributing to a savings fund each month, one could always tackle the project piece by piece and pay for small parts of the project each month rather than tackling everything in one go,” Goslett suggested.

Alternatively, those who have an access bond facility could possibly access the funds through their home loan. According to Goslett, this would be one of the most affordable ways to access credit.

“But, unless you near the end of your loan term, I would caution homeowners to pay back the loan as soon as possible. Interest accumulated over a 20-year home loan period will work out to be far more expensive than a personal loan taken out over two or three years.”

Those without an access bond facility could access a personal loan to fund the project, but this will be at a much higher interest rate.

“If one does decide to go this route, it is advisable to pay back the loan as quickly as possible to minimise the interest charges, as these will not contribute towards the resale value of the home. Trying to keep those amounts as low as possible will ensure greater profit margins when the property is later sold,” he recommended.

Whether renovating to sell or simply to improve the enjoyment of the home, Goslett explained it is always worth leaning on the advice and insights a reputable real estate professional can provide. He also recommended consulting a financial advisor to find out which financing option would offer the best solution for you.

“Your home is one of the largest assets you will ever own. It is worth consulting the experts to help you make the best possible decisions when it comes to managing this asset,” Goslett concluded.