How homeowners can ensure that their property retains its value
A property declines in value with every passing year. To prevent this, homeowners need to actively maintain their property. But what should you do? We look at how value retention works and what financing options are available.
Renovation work helps a property to retain its value
For many people, owning a home is a dream come true. In order to ensure that years later – when the time comes to sell, for example – homeowners don't suddenly find that their property has plummeted in value, proper upkeep is essential. After all, fixtures and fittings of various kinds will depreciate by between 1% and 2% every year. By maintaining and renovating their property, however, homeowners can counteract this fall in value.
Maintenance and renovation work not only prevents a home from losing value, but is also worthwhile from a tax perspective. Because money spent on replacing that old kitchen or laying new flooring is tax deductible. So, given the current low mortgage interest rates, deducting the costs of renovation work can save homeowners more tax than deducting interest payments right now.
Invest to add value to your home
Maintaining and renovating your home can potentially even add value to your property. This might be the case if you were to enhance your home, by building a carport or installing solar panels, for instance.
Investments of this kind, which are called value-enhancing, can pay off in the long run when you come to sell your home. Unlike value-maintaining renovations, however, this kind of work is not tax deductible.
Financing options for homeowners carrying out renovation work
Whether you are carrying out value-maintaining or value-enhancing work, before you start with renovations of any kind you should always draw up a rough plan, including financing arrangements for the work. There are several options for homeowners looking to finance renovation work:
1. A construction loan
If, for example, you inherit an older property with no mortgage and you want to completely modernize it, you can apply for a construction loan from a bank. This will normally specify a minimum amount and a minimum period. Financing of this type is suitable for both value-maintaining and value-enhancing renovation work.
2. Additional borrowing on your mortgage
If you are thinking of carrying out renovation work and your mortgage is coming to an end in the next few months, it's worth having a chat with your bank. If you can't foot the entire cost of the planned renovation yourself, as a homeowner additional borrowing on your mortgage is a good option. This method of financing is primarily suitable for value-enhancing renovation work.
3. Grants and subsidies
Installing solar panels on your roof or replacing conventional oil and gas heating with a renewable heating system is a worthwhile way to renovate your home. Energy-efficient and value-enhancing renovations are eligible for funding through various federal, cantonal, and municipal grants and subsidies. Before starting work, find out about any funding that you might be entitled to through such programs.
4. Pension capital
For more expensive renovation work, homeowners also have the option of withdrawing assets from their third pillar retirement pot or pension fund. However, the use of pension capital is restricted almost exclusively to financing value-maintaining renovations.
Build up reserves for renovating your home
To find out which form of financing best meets your needs, arrange a personal consultation with your bank. Because whether a bank will finance part of your renovation costs will always depend on your particular circumstances. When it comes to routine maintenance, homeowners are largely expected to foot the bill themselves. Even for value-enhancing renovation work, any construction loan or additional mortgage borrowing from your bank won't cover the full cost.
For this reason, it's a good idea to set up an account with savings specifically for this purpose as soon as you buy a property. By paying into this account regularly, you'll be setting aside some money for the maintenance and upkeep of your home, which you can later draw on without any problem when renovation work is on the horizon. With interest rates low right now, it's a great time to pay money into a reserve account.
Examples of renovation work to maintain the value of your home
You could, for example, invest the money that you have saved in renovating your floors and exterior walls. An attractive new floor covering really lifts a living space.
Or has your kitchen seen better days and you're looking to replace it? A kitchen renovation offers you numerous opportunities for a redesign, and modern, energy-efficient kitchen appliances can save you money, too.
The bathroom is an oasis of wellbeing in any home. Modernizing is a great way to breathe new life into a bathroom, keeping it beautiful and functional.