If you own a home then you’ve contemplated a home renovation. Your home renovation project either falls into the category of desperately-needed or elective. In this post I’ll discuss a few topics related to the value of a home renovation and the various considerations for the high-earning doctor.
Housing
The term homeless is misleading because a home isn’t a structure but where you feel at home. Houseless is the topic which is actually being discussed when we refer to the homeless problem.
Our society has an obsession with ownership which is disguised as a financial motivation but is in fact tied to our unease with death and perceptions of mortality.
Houseless, Homeless
Most individuals who are houseless are so because of various life circumstances and often have some comorbidity that makes them a poor candidate to maintain a house which is an incredibly hard endeavor.
To be the proper house owner you must be able to maintain the property, behave neighborly, avoid letting your personal problems reflect on your home, and you must have a steady income to maintain the ongoing costs of a house.
A mood disorder, a personality disorder, substance addiction, turbulent family members, finicky health, and an entry-level job are all factors that lower your chances of successfully owning and maintaining a house.
We’re not houseless just because we choose to rent. But we can become house-poor if we buy, renovate, and move every 5 years.
A house can becomes as much of a financial vacuum as an older car. No matter how much is sunk into the property it still seems unfinished and unsellable or just not quite right.
Owning, Renting
There is nothing wrong with renting and before I go on, let’s make this very clear. If you are in your wealth accumulation phase, few things will grow your net worth faster than avoiding home ownership.
Most homes are owned by inefficient landlords who are making enough to maintain the house but aren’t making any profits off of it. I know this because I have a lot of healthy doctor friends who own homes and they’ve shared their numbers with me.
I’ve discussed the topic of renting versus owning before and have laid out the few scenarios where it could make sense to own during your wealth accumulation phase so I won’t repeat the topic here.
Renovation Rationale
I want to renovate my kitchen and bathroom because I think it will be much more comfortable and increase my resale value. That, at least, is the thought that goes through my head every time I think about the idea of renovating my condo.
I want: A sleek walk-in shower with a curbless transition to the rest of the bathroom and a sink which tucks in nicely into the small space while providing better storage.
I want: A kitchen with a more open feel which supports open shelves and a space for 2 refrigerator drawers so that I can move the fridge from its current ineffective location.
I want: To turn the extra small room which currently houses the washer/dryer to become my study and replace the W/D with a combo unit which stashes in the same spot as the unneeded dishwasher.
I want all this because:
- I deserve it
- I have the money to afford it
- I want to be less embarrassed when having people over
- so I can entertain more
- so I can have more usable space
- to raise the value of my condo
These are the thoughts and ideas which are on my mind. So where did they come from? I certainly wasn’t born with them.
How much influence did society have on my needs and wants to renovate my condo and how much influence comes from friends and family? What need is going to be satisfied and will the money be well-spent? What environmental and personal financial factors are worth considering?
Doing It Yourself
I’m a DIY-er. I enjoy the process of learning and then testing my knowledge and for some reason I’m narcissistic enough to delusionally believe that I can do it better than anyone else.
There is an advantage to being a DIY-er not only because you can save money but also because you can have exactly what you want – custom beyond custom.
In this industrial age we have managed to destroy other countries by exporting production of goods there and have instead artificially driven up the cost of labor. It’s labor which is the most expensive cost of any renovation. We’ll ignore the cost of pigmented human lives for now – that’s too morbid for a Sunday.
I can buy the tiles and fixtures for the bathroom for under $1,000 but would need $10,000 in labor to create the space to house these products.
Taking out the tub and setting down a waterproof base and creating the sloped shower base is very simple – a 7-minute YouTube video can tell you everything you need to know. But it’s not easy. You’d have to watch that video 20-30 times and pay as much attention to detail as the surgeon does when cutting down to their destination.
Knowledge or skill is really no longer an excuse. The how-to is free and ubiquitous online as well as in your library and you can get live feedback on forums.
Your Desired Result
When the idea of a renovation creeps into your head it’s important to understand that it got in there because of a lot of pressures from society, backed by TV shows, financial logic of appreciating asset values, and peer pressure from friends and family.
We might approach a renovation with justifiable notions…
Comfort
Investment
Opulence
Access
Safety
Repair is different from renovation. I might pay $16,000 to repair the roof but that’s the cost of owning a single family home – nothing elective about it. Not to mention, a timely repair can be a fabulous investment for the right property.
My sewer lines to the main might be so rooted that it would make little sense to keep calling the plumber every few weeks and instead fork out $8,000 and redo the pipes in the yard.
Investment?
I have spent a great deal of time online reading how supposedly it’s a great investment to renovate a kitchen and that you get “100% return on your investment”.
Which, of course, you won’t. If I pay $25,000 to a contractor to renovate a kitchen or $15,000 to add a ½-bathroom to my home, that doesn’t at all guarantee a return on the investment – certainly not the misleading 100% figure.
You are paying for the renovation with after-tax dollars which might be a moot point for some but I don’t see how high-income (high-taxed) physicians can ignore this fact.
You spend hours, if not months, researching the idea and project and hiring the right person to do the work. We are advertised to that this is an investment and some of us are misleading ourselves thinking that we are doing it to increase the value of the home – if that’s the case then how can we leave out our expensive hourly time off the books?
I can earn a solid $200/hour – $100 at the very least – and in order to take a renovation project to completion I need to:
- come up with the design idea
- research the feasibility/permitting
- view alternative projects online
- talk to friends/family
- vet contractors and handymen
- draw up a contract
- be on-site to oversee the project
- make adjustments as problems surface
- maintain the renovation over its life
My buddy in Los Angeles has spent the last 1.5 years overseeing his home renovation for nearly 30 hours a week – it’s still ongoing.
Another buddy in San Diego spent $500,000 on a kitchen renovation which turned out very different from what he expected. Not short on money, he ended up selling the house without recouping much of the expense and buying a house which matched his design criteria.
Hobby?
If this renovation isn’t an investment then perhaps it’s something you’re doing for yourself. If this is a hobby, then let’s call it a hobby and take the pressure off of ourselves that we need to make it cost-effective and instead let our creativity loose.
There is nothing wrong with treating yourself to a luxurious bathroom. I want to hear that plop reverberate off smoked teal glass tiles and wash my feculent hands in a beaded copper sink.
Renovation as an Investment
Since my ideas aren’t controversial enough, let me state that 99.99% of renovation are poor investments while repairs offer returns on your investment multifold.
The exceptions which I can think of are when you take a home which you purchased for far below market value and you had the vision, connection, and time to renovate it into something spectacular. Even then, it’s rare to recuperate your time-cost unless you earn burger-flipping wages.
Best House On The Block
Some have the feeling of grandeur that they can make their home into the best house on the block which will then make it stand out enough to fetch the highest price.
It’s likely to make your house the nicest on the block – no debate there. But to market that house is a whole other dilemma.
Not only would you need the right realtor with the right market penetration, you would need to stage it, and likely do some more touch-ups right before the sale – all of which will increase your selling cost.
Environmental Factors
Since everyone I know has a fetus fetish, reproducing at bunny rabbit rates, it has become necessary for at least some of us to ration resources.
I don’t have kids that I know of but I’m not saint! I used to drive a Hummer, eat meat, buy electronic gadgets, and new clothes and take vacations like I had a private jet at my disposal.
These days as I sit there on the porcelain throne playing my sphincter bass, I stare up at my bathroom and I see a selfish Dr. Mo who wants more opulence even though there is no need for a renovation. My sister would disagree who find s my bathroom hideous and my ex’s will tell you how horribly uncomfortable the 1920’s cast iron tub is.
And yet my utilitarian buddy has no trouble using my bathroom, knocking up the seat, and offering a golden shower not just to the toilet but the majority of the porcelain tile nearby – thanks bro.
I’m a bit radical with the environmental factor – I realize that. But our actions impact the environment. All those electrical tools going to work on my bathroom, all that refuse which cannot be recycled, and all those new fixtures which have to be made and installed.
I propose a middle ground of trying to use recycled material from rebuild centers and finding out how to recycle the majority of the tear-downs from your renovation project. There are fantastic resources available to help you do this.
The Renovation Process
If you are going to renovate your house or condo then I want to spend this section talking about how to make it the most lucrative decision.
Tax Deduction
One easy way is to use a mortgage or HELOC to pay for the renovation instead of using a credit card or even cash. This might allow you to write off some of the interest charges on your taxes.
I’m not a deb fan and think it’s better to pay cash but your circumstances and priorities might be different.
Cost-Basis
Maintaining your cost basis is another concept worth mentioning. The IRS allows us to profit up to $250,000 on the sale of a home tax-free – one of the only true tax-free incomes out there ($500k for couples).
If you bought your home for $500k and sold it for $800k then you’d get the $250k of profits tax-free but would owe capital gains taxes on the other $50k. If you renovated your home over the life of owning it worth at least $50 then you can offset your cost basis which now takes your investment up to $550k and allows you to pay zero taxes on the profits from the sale of the house.
The Contractor
I love a good handyman who can help you maintain your property. And maintain it you must. The biggest money sink is a home which is maintained too infrequently turning a small cavity into a root canal.
When you want to undertake a renovation I recommend using a contractor. Someone who is licensed and bonded.
Licensing helps protect you and the contractor and their employees from liability and bonding protects you as a consumer should the contractor not deliver everything they promised in the contract.
Save Money
You might pay a lot more to a contractor for the contracted renovation work but you’ll often pay a lot more in the long run or at the very least suffer a much higher depreciation of the work performed by a handyman.
A good contractor has a team of engineers, interior designers, subcontractors, and foremen who will replace all the due diligence work that you’d have to otherwise perform yourself.
You might have just upgraded your bathroom to a high-flow shower with your handyman and even upgraded the fan to vent out the vapor but not you nor the handyman had the expertise to realize that with the extra water hitting those outdated tiles would start letting too much water through to the subfloors and without upgrading the ducting in the attic, you wasted your money on a higher CFM fan.
You wasted your money on the work of the handyman and now have to go back and start over. That’s assuming you realized this mistake in time before a leak develops which then would require a much larger renovation down the road.
Enjoy Your Money
I don’t think we should torture ourselves on the path to financial independence. If you have place in your house that you desperately want to renovate then you should do so if you are in the financial position to do so.
If anything, I want to get every physician who reads my blog to be a budget ninja and an investing tycoon in order to never worry about money again in life. You’re a doctor, you make good money, you are intelligent and 100% capable of becoming the poster child for financial security.
If you’re not there yet then pick up some extra shifts at work. Create a line-item in your budget that says “Renovation” and keep adding funds to it until you have the $20k to pay for the custom torture chamber you’ve always wanted.
Long-term is Better
The longer you stay in a home which you’ve purchased, the better your chances of recouping a healthier portion of the renovation costs.
If you stay in your home for 15 years and you spent $20,000 on a renovation then it will come out to only $1,300/year or $111/month.
Ask yourself, would you be willing to pay $111/month for the next few years if you could enjoy your basement BDSM chamber? Of course you would – you freak!