You had your best-laid plans and then COVID-19 came along and hammered the entire economy. But you’ve got this – if you have the right information. Join Rob Carrick and Roma Luciw on Stress Test, a podcast guiding you through one of the biggest challenges your finances will ever face.
ROMA: Renovations have inspired an entire reality TV industry. You can watch construction disasters, covet new kitchen cabinets or judge peoples’ terrible taste in bathroom tiles.
ROB: But for some in Canada’s expensive real estate market, home improvements aren’t a luxury. They’re a necessary evil to get housing that fits their needs. And often, doing the work is a more affordable option than buying the perfect place.
ROMA: Welcome to Stress Test, a personal finance podcast for Millennials and Gen Z. I’m Roma Luciw, personal finance editor at The Globe and Mail.
ROB: I’m Rob Carrick, personal finance columnist at The Globe.
ROB: We’re not here to talk about renovations as retail therapy or as a way to make cash by flipping houses. What we’re interested in is renovations as a tool to get the home you want but can’t otherwise afford. Roma, done much renovating lately?
ROMA: Oh, have I ever. I have renovated over and over. We lived through the dust and dirt and chaos and noise and the expense. I mean, for my husband and I, it was cheaper to stay in the house we’re in. We bought the house knowing we would have to renovate. We love our direct neighbors. They’re like extended family, and the kids are all growing up together. You know, it wasn’t a perfect home and it never will be, but it was the right decision for us. And it’s something that I think people have to think really carefully about when they’re looking to buy a place.
ROB: One of the big benefits of renovating is that you sidestep the housing market. Now, I know the housing market is not as hot as it once was. There aren’t many bidding wars anymore. You don’t have to put in any no-condition offers, but it’s still a lot cleaner and easier to do a renovation than to undertake than buying a house. Also, a renovation debt could be quite a bit smaller than the mortgage on a bigger house.
ROMA: Our first guest needed to renovate the home he bought in order to afford the mortgage payments. That’s up after the break.
TOMAS: So my name is Tomas. I am 35 years old. I currently reside in Victoria, having just moved here about a year ago. I used to run my own business. That kept me really glued to Toronto and to the office. We had been downtown, in a condo that we were leasing that was great when we were younger, but it just kind of grew out of our needs and we were looking to kind of expand. When that lease was up, we had this ability to work from anywhere and we were faced with this decision. If we could work from anywhere and live anywhere, why do we have to live here?
ROMA: Tomas and his partner had saved for years, but they still couldn’t afford a place in Toronto’s red-hot market.
TOMAS: At times it felt like a double dutch like you’re trying to jump into this mayhem and you’re just not feeling ready to do so. And we were faced with just very few options for what we could afford. And it felt just uninspired. We just felt like there were no options that were good. Not for lack of looking in Toronto. It just felt like we were constantly settling. And one thing I’ll say is when you’re looking at your life savings, it’s a weird scenario where you go from the richest have ever been in your life. At least from my perspective, the most money you’ve ever had and you’re about to back and go the opposite and be in the most debt you’ve ever had. That’s a big decision, and it’s not one I think that people should take lightly.
ROMA: So they “Marie Kondo’d” did their lives and traveled west. They fell in love with Victoria and started looking at real estate. Originally they thought they’d buy a townhouse. Then they noticed people buying big houses with suites that they could rent out.
TOMAS: You know, the amount of cash that we would put towards our mortgage every month on a townhouse versus a larger house where you have a renter was essentially the same. And that really expanded our horizon. I don’t think we could have afforded a place like this in Toronto period, with or without a renter. And I don’t think we could afford this place in Victoria without a renter. No, we just would be way over our own personal stress test of how much we want to be paying.
ROMA: That meant they needed to renovate and fast. Now, getting Renos done on a quick timeline isn’t easy, let alone on an island and during a pandemic.
TOMAS: I don’t know how much of this is fact or fiction, and it’s probably a healthy combination of both. But there’s a mentality here, a shoulder shrug. We’re on an island, and so everything is slower or in less supply or more expensive. And that’s not fun. And so whatever supply chain shortages were happening at the time, that’s definitely something to keep in mind. You’ve got to get supplies and they’d be sold out as they fly off the shelves. We were at the tail end of that, but definitely more expensive. Material costs, supply chain issues. But the number one source of our stress throughout this was the contractors. It was stressful because we bought the house quickly. Like, again, those are the tactics you need in that type of market. You need to have very few or no conditions. And so now you have a timeline. So those mortgage payments have started and you have that urgency to start subsidizing them. Well, you need contractors to come quickly and there’s that triangle of you can have a good, or have high quality, or the way you want it. So you can have that part of the triangle. You can have it fast, or you can have a cheap and you can choose two. And we already had one chosen somewhat for us, which is speed. And so we were trading off between expensive or what we perceived as “good”. We had maybe several different trades that we needed. The two most expensive and most important for the job ended up being the most difficult to deal with and the sources of most of our stress. It started to ramp up and well after the work was done, there was still stress there. And it’s not the amount of work that they did either. It’s coordinating all those pieces together. Some people would use a general contractor, and so that person is kind of the quarterback for all the various trades and they’re supposedly accountable. And look, I think that there’s probably great people out there, but are you going to find them? And were we able to in a city where we didn’t know people? No.
ROMA: They started the reno the day they got their keys. They worked with some excellent tradespeople, but others did drugs in their bathroom, didn’t show up, or billed them for thousands of dollars above the estimate. Still, they managed to finish within a few weeks of their aggressive three-month timeline.
TOMAS: But we were very scrappy. We had a good amount of help from a family member to do this. A lot of the in-between work we did a ton, whatever we could ourselves, and it worked out in the sense that we had some vacation around that time. So we spent, you know, Christmas and New Year painting to make that happen. It was a small sacrifice that was definitely worth it in the end, I think. I think if I’m sharing this story with others, it’s what do you have to trade at the moment? You’re going to trade up on stress, you’re going to trade on money, you’re going to trade off on your time. You’re going to trade off your own well-being because there’s an opportunity cost of your time. Work has to come first or family has to come first. So understand your situation. And for us, we were in a new city. We didn’t have a lot. We didn’t have any friends here at the time. We didn’t have kids and so we could put more time towards this project. I think that the other point I would say is, yes, you’re trading off on all those, but don’t kid yourself and think that you can just pay someone. “I’m paying someone to have to deal with my headaches”. I think that that’s a foolish way to kind of approach it, because ultimately they’ll just take you for everything you got and you still won’t be anywhere. There’s a lower limit to how little you can reduce your stress, but there’s also an upper limit as well.
ROMA: Tomas and his partner had a tight budget for their renos. They had about $10,000 in savings left over after the down payment, three credit cards, and two lines of credit. The original estimate for the project was 40 to $45000. The final bill was pretty much on budget at $46,000.
TOMAS: I think again, it’s important to say that that’s not without a great strain or stress. So the more hands-off you’re going to be, the more you’re going to end up spending. We were more hands-on. It was another full time job. It was a very stressful period, having already moved across the country, in a city where we don’t really have friends and family. We would finish up work around six or whatever. Sometimes we’d have to work later and then we would either open up all the spreadsheets that we had going to figure out and try to get things back on track. Or we would change into our, you know, painting, clothes or whatever the case may be to try and get that to work. So yes, it was on a budget, but not without a healthy amount, or maybe not healthy amount of extra effort. And there were definitely times when we sort of had our own breakdown, myself and my partner, where we just laugh about it. But there were breakdowns because you just felt like we’ve been doing this for a year and, yeah, we’ve made progress, but this isn’t the life that I would want to live.
ROMA: Especially when the rental income started coming in. That money covers about half of their monthly mortgage payments.
TOMAS: Yeah, I’d say it’s been worth it so far. We love it. We know that we’re in a house that we couldn’t afford in Toronto. Even for the same budget, it wouldn’t be the size or have this many amenities or be a location we wanted, and so we’re happy in that regard. But we did buy at the top of the market. We got a great interest rate, but we did pay quite a bit for the house, so I definitely think it’s worth it to put the basement suite in. It was a miracle. But I will say the feeling as those things notably leave is fantastic. The first check you get deposited into your bank account, it’s the opposite of the, you know, the little engine that could or maybe it’s all in the same. Like you’re starting to go up. You are still below surface level or you’re still below zero, but your direction is changing, baby. We’re moving on up. And that felt great. Anda couple of months more go down and you stop spending as much because, your credit card is constantly being punished and you’re moving dollars around and you’re looking at everything. It’s really tight. But the moment you start moving in that direction, where you start seeing supplemental income and now a year out where we’ve paid off the reno cost and you’re just seeing how those folks here live this lifestyle, it is worth every single bit of it. And people might be discouraged because I don’t want to share my property with someone else. Part of that might be the nature of the property, like if it’s a really small space, with the driveway in the front, like if there’s no way to physically avoid that, but on most properties with good sort of design, you can avoid hearing the person, seeing the person. And so you really don’t have to know that they’re there, but you’ll definitely see it on your bank account every month where there is deposits going in. And so there is light at the end of the tunnel. And I think that that’s what we were aiming for right at the end.
ROMA: To cut back on spending and stress, Tomas recommends searching for used supplies online. He also thinks it’s a good idea to bring in a contractor when you’re house hunting so you can get a sense of how much a reno will cost. Our next guest had a growing family and needed to renovate to stay in their home.
WARREN: My name’s Warren. I live in Hamilton, and I’m 35 years old.
ROMA: Warren and his wife, Sarah, both teachers, moved to Hamilton about five years ago. Sarah saw house prices rising and jumped at the opportunity to buy a place in an up-and-coming neighborhood.
WARREN: I really wanted to live in Hamilton because I grew up in a city and I value what a city offers to a young family. We didn’t have kids yet, but we wanted to start learning some roots. And Hamilton was the closest sort of look alike to what I grew up in, but affordable. When we bought the house, it was built-in 1909, so it was a very old house. It looked kind of like it had a lot of cosmetic work done that made it a little more livable. Probably better to sell on the market. And so there’s a lot of sort of funky handyman work that you could see throughout. The backyard, had the most obscenely large shed that I’ve ever seen that was rotting through the roof. So there are a lot of little bits and pieces that needed to be done and then some major things that were a pretty good amount of work to do. We didn’t know how much we were going to put into it. It was going to be like a stepping-stone house. Until home prices soared and we got excited and then realized that all of the neighborhoods that we wanted to move to also skyrocketed.
ROMA: Then they found out Sarah was pregnant. With twins.
WARREN: We knew that we wanted to do a major renovation when we were trying to have kids. And we knew that it was going to be pretty important for especially my wife when she was home with them to have a more comfortable living environment. So we knew we were going to invest in that. So we refinanced a bit early when interest rates were pretty attractive. That gave us the capital to do a bit of a bigger reno at a cheaper interest rate.
ROMA: They got a large line of credit based on the value of their home. They still weren’t sure if a reno was the right choice or whether they should just move.
WARREN: We would have conversations every other day about, well, maybe we should move, or well, we could make it work. You know, we landed in a neighborhood that was on the up and up. And so we’ve fallen in love with the neighborhood. We still aren’t sure if the house is going to be big enough to be a long-term thing for us. We have an idea of sort of the life that we want to have and getting more debt would be pretty tricky for that. So recently we’ve decided that we’ll kind of do that for ten years and then like we try to get a bigger space when our twin boys become that twin teenage boys.
ROMA: They planned a road trip for their last child-free summer. They thought the renos would be done by the time they got back.
WARREN: In a perfect world, we were expecting it to be like 4 to 5 weeks to do everything. Windows were super backlogged and that was a major thing that delayed a lot of work. And our windows didn’t get installed until like the first week of November. So we were expecting to be done in August and things had to get stretched way, way out because of all of the different supply chain stuff.
ROMA: Not only did the project take longer, but it cost double what they originally budgeted for.
WARREN: We hired a contractor to tear down some walls on our main floor to make our main floor open concept. And then that would include redoing the kitchen. We basically like gutted the whole main floor except for was that we didn’t have to touch and it was insulating fixing floor joists that were cracked because of some poor handyman work that had been done. I don’t know how long ago. The plumbing all got redone. All of the heating and air conditioning and ventilation had to get done because it was the ductwork was all mangled. And then in the middle of our trip away, the contractor said the floor joists going up to your second floor are all cracked. So it’s the reason why the floors have sagged on the second floor. So he was like, I have to fix this. The concern is, is when I straighten out the ceiling and straighten out those floor joists, it might crack your bathtub and impact your second-floor bathroom. It’s like we’re already here. We’ve got all the tools, there’s never going to be a time that it’s cheaper to actually do this second-floor bathroom as well, which was a pretty compelling pitch to us in that we knew that that bathroom was kind of a future endeavor. So we pulled the trigger on that. It was kind of a bad idea not to you know? We went into it thinking it was going to be 50 K and it got close to doubling that by the end, which was a lot of money that we were kind of used to spending. But with the financing that we did, we felt comfortable that that was money we would get back down the road. And that would create a lot more comfort and joy for our twins that were on the way.
ROMA: Despite the renos being over time and over budget, Warren and Sarah were happy with how it played out.
WARREN: You know, our original budget felt like a lot of money, but we were very committed to improving the house as we needed. Certain walls were drafty. And there are so many things that didn’t feel like the house was ready for our kids to come. So I definitely think there’s some emotional contribution to knowing our twin babies were like coming around the corner and we wanted to make sure that they were coming into a house, where they would be spending most of the time, would be very comfortable in terms of the heating and cooling. They were born in December, so we were really worried about being warm enough. And the ventilation wasn’t very good. So some rooms were really warm, and some rooms are cold. So mentally we were kind of pretty prepared to do what we had to. And thankfully, we had a contractor that we really trusted and did not embellish things or push back. He wanted to do it high quality and he genuinely cared about not overspending but spending smart. The trust that we had in the contractor I think went a long way. I think we just sort of knew there’s no turning back and we just meant we just accepted that. At the time it not being ready until late November was challenging because that was getting closer and closer to the due date.
ROMA: The twins arrived in December. Warren wouldn’t advise making a big financial decision with babies on the way.
WARREN: We couldn’t pull away from like the emotional impact of us having kids as being a major influence on it. So I think there’s like a rule of thumb to not like to make large purchases that are emotionally impacted. Hust finding the right people, being pretty clear on what your expectations are and what you hope for it to look like and riding the wave a little better and not micromanaging because that will just be like more stressful moments kind of mounting. Just kind of try to keep looking at the big picture.
ROMA: After the break, we’ll talk about renovation trends and affordability with an industry expert.
ROB: Shir Megan is the CEO of Home Stars, a free online service for homeowners, who can review and find home improvement professionals. Home Stars also conducts research on Canada’s renovation market, which is still running hot.
Based on what you see at home stars, what are the most popular reasons why people are renovating their homes right now? And I’m thinking of renovations for pure livability rather than to beautify or to make a home look great.
SHIR: Absolutely. People are plain and simple staying in their homes longer. This is the name of the game these days. And so the more time at home means more wear and tear. Essentially that they’re doing their bathrooms. They’re doing their basements, they’re doing their kitchens. These are all the things that they need to do in order to enable their home to extend for their changing needs during this time.
Rob: Housing is super expensive, even though prices have come down, and a lot of people must be wondering, can I afford to move up? Do you think it’s cheaper to renovate a house rather than buy a new one?
SHIR: A lot of times it is. So the options really are for millennials these days: either you go out there, you buy a fixer-upper and you renovate over time, or you stay in your home for another few years and you renovate it to suit your changing needs. And so these renovationss are really excellent for people in this situation, if they are going to stay in their homes for another 1 to 3 years, because the renovations that they’re going to likely need to do: that basement, that kitchen, that bathroom are going to be ROI positive. This means that the money they put into their renovation will actually they will get it back when they sell their home in a number of years. And that’s a really good thing. So on one hand, it gives you added functionality. On the other hand, it gives you an added price.
ROB: There’s always a lot of talk about the renovations that add value to your house and the ones that are kind of for your personal enjoyment. I’d like to focus here on the ones that really add value and add utility. Do any particular renos that come to mind?
SHIR: Absolutely. We see a lot of people adding now rental income units. This means a basement. This is really, really helpful. And the other thing that we see is a lot of are homes getting converted into intergenerational spaces. Instead of putting them in elderly care accommodations, they’re bringing them into their homes. So they’re adding an extension, adding in a bedroom and a bathroom and a living space for their added family members. And that way they’re able to get more out of their homes. We’re also seeing people adding in additional bathrooms, additional office spaces, all of these things to be able to get the home to be a little bit more for our changing needs. We see these all the time. We’re seeing pools getting added in. People are traveling less so they’re using their spaces to accommodate their leisure as well.
ROB: One of the big stories in the pandemic was how lots of people were renovating at a time when supply chain issues were pushing up the costs, and raw materials and lumber really come to mind. How is the cost of rental materials tracking right now?
SHIR: The cost of materials is going down slightly. However, this is getting offset by the fact that labor is costing more. This is why we see discretionary projects fall off at this point in time.
ROB: Another thing that relates to the supply chain issues as if I’m doing a renovation and I need all these materials, I need lumber, I need ceramics, I need fittings, and that sort of thing. And some of the stuff’s in, but some of it isn’t. And so my contractor is going off to other projects while we wait for various components to come in, is that still an issue? Just getting the things I need on time so that the rental can proceed expeditiously?
SHIR: Yes, it very much is. The project is taking longer than ever. We also see as a result that a lot of contractors are actually planning their projects a longer while out. So right now, homeowners, if you want to be doing renovations in the spring, you got to start those discussions today. There are a lot of things that your contractor will tell you. Order your appliances today. Finalize your design today so that they can navigate the sequence of availability of the materials and supplies.
ROB: How are people paying for renovations?
SHIR: Some Canadians still have money on hand or the ability to borrow from family and friends, but that is getting far and fewer between. And we see Canadians still going out and getting short-term loans and lines of credit. This frankly, Rob, makes me nervous. And the cost of money, as you know, is increasing dramatically. These short-term loans are north of 10% interest these days, and that adds dramatic financial pressure.
ROB: My wife and I have done a few renovations over the years and there are always complications that arise. I’m wondering in today’s world, what are some of the common renovation problems that people are experiencing?
SHIR: The biggest problem that we see right now is the availability of materials. You’ve touched on this. Homeowners need to work very well with their contractors to be able to schedule these things in advance, but we’ve already talked about that. The other issue that we find, unfortunately, is homeowners not checking up on their pros in advance of their project. This means that they are hiring pros that don’t have a strong reputation, that may run off with a deposit, and that may not get the job done right the first time. Unfortunately, this happens a lot, Rob, and we really, really urge Canadians to go and make sure that they hire properly. Make sure that your pro has had a background check and a financial check. Look for that verified badge on Home Stars or on sites like ours in order to ensure that the job will get done the first time.
ROB: What are your top money-saving tips for people who are planning a renovation?
SHIR: The biggest tip I have for homeowners in saving on their renovations is to understand what they use. How long do you intend to stay in your house? If homeowners answered this one simple question, it will simplify their decision-making for the duration of the renovation. For example, if you’re doing a kitchen renovation to give your family another 1 to 3 years in your home, that’s going to drive different decisions. That means you’re not going to go for that custom cabinet. You’re not going to go for those high-end finishes. This is the most important thing for homeowners to do, as opposed to if you’ve just bought a fixer-upper, you’re going to do that kitchen renovation with longevity in mind. You’re going to focus on quality. You’ll focus on the higher-end framing. You’ll focus on a higher-end countertop. Make sure you answer the question: how long do you intend to stay there?
ROMA: Even though rental costs have never been higher many homeowners are still forging ahead with them to get the home they want and need. My only hope is that they can afford it. Rob, what are your takeaways from today’s conversations?
ROB: 1) The ideal way to pay for renos is through savings, but a home equity line of credit is fine as long as you set a deadline of 12 to 24 months for full repayment. After recent interest rate hikes, HELOCs are a lot more expensive than they used to be.
2) Expect cost overruns even for simple, practical renos. You know the drill. Your contractor comes to you and says, “what idiot installed this wiring, plumbing, flooring, etc. We need to replace it all”.
3) Be ready to compromise with your plans and materials. The best of everything will leave you in debt for an extended period.
ROMA: Thank you for listening to Stress Test. This show was produced by Kyle Fulton, Emily Jackson, and Zahra Khozema. Our executive producer is Kiran Rana. Thanks to Tomas, Warren, and Shir for joining us.
ROB: You can find Stress Test wherever you listen to podcasts. If you like this episode, please give us a five-star rating on Apple Podcasts and share it with your friends.
ROMA: Next up on Stress Test, we talk about getting paid. Inflation has pushed up the cost of just about everything and pressured some companies to increase salaries. But the economy is shaky. And it’s an industry-specific story. We’ll discuss the best strategies for negotiating more money.
ROB: Until then, find us at the Globe and Mail dot com. Thanks for listening.