Maximize Your Home's Return on Investment: Living Spaces

living room/kitchen

If you’re looking to improve your home in a way that will make your experience living in it more enjoyable and provide a solid return on your investment, you may want to consider making an upgrade to your living space. Real estate professionals agree that tackling such a project can pay off—particularly if it adds living space to your home. “A lot of the requests that we get are for improvements of that kind,” says Lori Eberly, consumer lending manager with UW Credit Union, describing the conversations she’s been having with loan seekers in recent months.

Finishing Your Basement
According to , 44 percent of real estate agents cited a desire for more space as the number one thing motivating home buyers into making a move in 2020. Especially after a year in which many Americans spent more time at home than perhaps ever before, it’s no wonder that more space is high on the wish lists of those seeking to purchase a new home. Adding more finished square footage is one way to catch the eye of prospective buyers, and unfinished basements are prime candidates for these upgrades.

No two basements are exactly alike, and the cost of tackling such a project will vary depending on the square footage of the space you’re planning to finish and other factors. In general, a basement-finishing project will involve framing, insulation, electrical work, and installing drywall and flooring. According to HomeAdvisor, the average cost of remodeling an unfinished basement is $18,400. However, you can expect to recoup up to 75 percent of the money you put into the project on the value of your home.

While remodeling a basement will undoubtedly provide a boost to the value of your home, it may not pack the same punch as an addition or other above-ground change. Lori says, “Below-ground space is not calculated at the same rate as above-ground space. If the changes or improvements or the increase in square footage to the living space is above ground, that’s going to have a higher value than below-ground space.”

Opening Your Floor Plan
A recent survey by the National Association of Home Builders found that floor plans that provide plenty of space around a living room, dining room, kitchen, and similar areas are highly desired by prospective buyers. “Usually, it’s a kitchen remodel that will end up knocking out walls or creating that open floor plan instead of a closed-off floor plan for a dining area,” says Lori.

Creating a more open floor plan can make your home feel more spacious and allow for more natural light to flood common areas. But don’t just go swinging around that sledgehammer without first consulting an expert. That wall you’ve got your eye on may provide important structural support to your home.

Understanding Your Options
If a renovation to your living space is on your to-do list, there are several lending products and spending strategies that can help you turn your project idea into a reality.

Lori recommends a home equity line of credit (HELOC) for most would-be borrowers. This flexible lending product leverages your existing home equity and allows you to pay for your project in stages.

“The HELOC gives you a credit limit that you can use, and you’re only paying interest on it when you’ve borrowed,” Lori says. “If you have the limit but you’re only part of the way through your project, you’re only going to pay the interest on what you’ve paid so far to the contractor.”

HELOCs can also provide you with a cushion to absorb additional costs in the event that an estimate is too low to cover what turns out to be the actual cost. Using a HELOC in tandem with a credit card that provides rewards is an effective spending strategy with even more benefits.

“If they’re buying their own materials, or they’re doing some of the work themselves, or whoever they’re doing business with will accept a credit card, it’s a great tie-in. They can pay for it with the credit card, get the reward, and then they pay it off when the bill comes due the following month from their HELOC and start accruing interest then. But they’re getting a nice little bonus on that credit card that they can apply however they want.”

Jason Scott writes about financial wellness for UW Credit Union, a not-for-profit financial institution that offers home-equity products, mortgages, auto loans, and more.

UW Credit Union
3500 University Avenue
Madison, WI 53705