Would you only renovate your home, or add a new feature or upgrade, if you were “getting your money out” as the saying goes?
I mean would you spend $5,000 on a new feature, only if you knew it would add $5,000 in value, or more?
To other people, they’d only consider adding a given feature if they got more than the cost of adding it, making it “a good investment.”
I’m of the opinion that not everything you do to your home has to provide a dollar-for-dollar return…
“Not everything has to make perfect economic sense.”
That’s what an extended family member once told me, which is odd, since he’s the last person on the planet I thought would be saying that.
And perhaps that’s why it does make sense?
This man is one of the most successful people I know, and when discussing various investment opportunities, I remarked, “I hate not having my money invested. It’s just sitting there, gathering dust.”
He told me that the right investment is worth waiting for, and if it took a day, a week, a month – it’s worth the opportunity cost, inflation, and lost interest.
It’s the complete opposite of what another family member would tell me.
This other family member works in a field where every penny counts. In his industry, the return is often the combination of hundreds or thousands of investments, each one providing a return, some yearly, some monthly, and some by the minute.
Ask “High Frequency Traders” how important one-billionth of a second is, in their world…
I told this other family member that I’m so busy these days, that when I get a commission cheque from Bosley, sometimes it takes me two weeks to go to the bank.
He couldn’t believe it. He said that those fourteen days represent lost income; lost interest. Sure, it might be only a few dollars, but it’s not about the monetary value – it’s about the relative value. In his line of work, the interest lost on those fourteen days could make or break a quarterly return.
So between my two family members, both highly successful, and both in very different industries, one is telling me that not everything has to make perfect economic sense, and the other is telling me that the reason institutions are so successful is because they don’t leave a penny on the table.
I hear both arguments, but in the end, I do agree that “not everything has to make perfect economic sense,” since we have to live our lives as we invest our money, every single day.
Real estate is one of the most unique investments on the planet, since we physically live in the investment. I’ve made this point before, so at the risk of sounding redundant, I will say that you can’t look at this “investment” in the same way as you would a GIC or ETC, or Income Fund.
When it comes to my clients, every one is different, but they all know to varying degrees that real estate is, in fact, an investment.
Some purchase second or third properties strictly to act as investments, and some see their primary residence as their largest investment to date. But when it comes to those folks who live in the property full-time, some of them are so incredibly focused on the property as an “investment” that they lose sight of the fact that it’s also a “home.”
About a month ago a client of mine asked me, “Would I get a higher return from putting laminate flooring in my condo, or a really high-quality hardwood?”
I asked him, “Well, you have laminate now, and you’ve always said you didn’t like it. You said you wanted to replace it from the minute you made an offer on this place! So why would you install laminate again?”
He told me that he hated the laminate, since it was really light brown, scratched by the previous owner’s dog, and starting to peel up at the edges. He’s always wanted a thick, bold hardwood floor, but when he was quoted $9,000 for new hardwood, versus $5,500 for new laminate that “really, kinda looks like hardwood,” he started to lean toward the latter.
“Do you want new hardwood?” I asked him. “When we were looking at condos, the first thing you looked at was always the floor! You seemed to really put an emphasis on this. What’s changed your mind?”
He told me that he wanted to ensure he would “get his money out” by putting in $9,000 hardwood flooring, and that if he wasn’t going to, then he would go with the laminate.
“Would you enjoy the laminate?” I asked him.
“No, not really.” he said. “It’s basically what I have now, but clean, new, and a darker colour. But it’s still cheap from what I can tell.”
“So then spend the money,” I told him. “Enjoy it.”
We all value features in our homes differently. Think about that “one thing” that really bothers you, every time you see it. Whether it’s the knobs on the kitchen cabinets, that massive scratch on your stainless steel fridge, or the god-awful paint colour you picked at random for your bedroom. We all have one thing (or often several…) that we really hate about our homes, and perhaps it is worth spending a bit of money to turn “hate” into “love.”
My client ended up springing $9,000 for new hardwood floors, and he sent me an email with the subject line, “You were right.” He explained that he comes home every day and looks forward to seeing his floors, in the same way that most “normal” people look forward to coming home and seeing their dog, spouse, or both. He added, “Maybe that’s an over-share?” with a smiley-face.
I’m not telling you all to run out and spend, spend, spend.
But I am telling you that while your home is an “investment,” you also live in it. You spend twelve hours a day here, and you might derive more pleasure from the property if it looks or feels a certain way.
Why do people go out to eat at restaurants?
I mean, you spend $120 on a meal for two people, when you could be eating Mr. Noodle or Kraft Dinner at home for $2 instead.
We eat food because our bodies need it, right? We eat, only as a means to sustain life, right?
Or, is it that sometimes, we value going out for a nicer meal of food, where it’s served to us, where we don’t have to spend an hour cooking, and where we don’t have to clean the dishes.
I see the same logic in your primary residence.
Yes, it’s an investment, and the largest one you’ll ever own.
But not everything in the house or condo has to be considered an investment.
I’ve always hated my fridge.
I hate the fact that the freezer is on the top, where it is for most fridges. It makes no sense to me, since probably 90% of the time or more, when we approach the refrigerator, we’re going into the fridge and not the freezer, and yet the freezer is at eye-level, and the most easily-accessible.
So I decided that I’ve had enough, and I wanted a new fridge. I wanted one with the freezer on the bottom, and double-doors on the top.
It cost me $1,800, on sale for 15% off at Home Depot, and I got $350 for my old one on Craigslist.
But did it add $1,450 of value to my condo? Probably not. It’s hard to quantify, and I’ll never know the difference when I sell. But I can guarantee that over the course of five years, given I go into the fridge 5-6 times per day, and see it out of the corner of my eye when I’m on my laptop or watching TV, I’ll get my money’s worth in terms of how much more I prefer the new fridge to the old one.
And that’s the point I’m trying to make today, folks.
You might counter with, “Okay, David, so then should every 22-year-old girl with student debt go out and buy a Louis Vuitton purse because they prefer it more than the one they got at Winner’s?”
It’s a fair point, but I’m not suggesting a condo-owner spend $9,000 on new hardwood floors if he or she is taking it off a line of credit.
I’d like to think that when people take trips to St. Lucia, they do so because they’ve worked hard all year, and saved money, and that is how they’re rewarding themselves, and relaxing so they can go back to work again. I’d like to think that they’re not using their VISA and paying 29% interest, but maybe I’m naive, and maybe, er, no, definitely – that’s a topic for another day…
The other point I’d have to counter with is that these “improvements” to your property do add some value. Buying a Louis Vuitton purse doesn’t add value to the cell phone, sunglasses, and make-up kit that’s within the purse. But painting your living room a newer more modern colour, albeit at $800, will most likely add value – real, or perceived.
It’s why we spend money to stage a property before it goes up for sale. That perceived value, in the mind of a buyer, often adds ten times what we actually spent.
And there is real value to just about every change, update, or alteration that we make. You don’t “need” a new kitchen backsplash, just like that girl doesn’t “need” a Louis Vuitton purse, but getting rid of a 1980’s backsplash and replacing it with something from 2015 will undoubtedly add value.
My buddy just spent $800 to paint his family room, and he told me, “It’s the best money we’ve ever spent.” They had a chocolate brown in there, and even though it’s the best room in the house (picture a century-old Victorian, with 12-foot ceilings, stained glass, mouldings), he always said it felt too dark, too cold, and too uninviting. They painted it a very light-cream, and it’s like a whole other room.
“We’re in here basically every night from 7pm until we go to bed. This is where we entertain guests. $800 is nothing in the grand scheme of things.”
My buddy, at no point, felt the need to ask me, “Did we add $800 in value to the house?”
There are tons of renovations or updates that you can do to your property, that will add a “two-for-one” return on your money. I’m sure there are three-for-one, or even four-for-one projects as well.
But at the risk of sounding cheezy, I’d encourage people to not always look at the dollar-to-dollar return when contemplating an update or improvement.
I tell all my clients to spring for custom closet organizers from Simply Closets or California Closets, since your clothing will be in your home, 24/7, 365, and you get dressed every single day. It’ something you’ll use more than just about anything in your home, and whether I tell you it’s going to add a dollar-for-dollar return, or a 2-for-1 return on your money, I promise you won’t care in the end.
That’s another story, and there can be a fine line between “getting your money out” and adding a “superadequacy” that’s a waste of money.
But as we move into the better weather, people across the city will start looking around at their homes, and thinking about “what to do next.”
Do what you want, and what you’ll enjoy. Not just what will provide the greatest return…