Ask Our Broker With Peter G. Miller
By Peter G. Miller
CTW Features
Question: We recently had some good fortune and now have extra money. The big question is whether we are better off using the cash for a major kitchen upgrade to increase the value of our home or to pay off student debt. Which should we choose?
Answer: Home improvements and student debt are fundamentally different.
Student loans are an obligation that must be repaid while home improvements are voluntary money we spend to better our lives.
Student debt is notoriously difficult to pay off. The New York Fed points out that 11 percent of all student loan debt was 90-plus days delinquent or in default as of the first quarter. However, the 11 percent figure is likely an understatement because about half of these loans are currently in deferment, in grace periods or in forbearance and therefore temporarily not in the repayment cycle. This implies that among loans in the repayment cycle delinquency rates are roughly twice as high, according to the New York Fed.
The big question is this: What happens if financial circumstances change? Will outstanding student debt become a burden?
Perhaps, however, your kitchen upgrade makes sense. Here are some questions to ask:
First, what is the total amount the improvements will cost? Is this expense comfortable for you?
Second, how much value will a better kitchen add to your property? Most home improvements do not quickly increase values on a dollar-for-dollar basis but at the same time a lot of their importance is not financial, it’s because owners want something more to their liking.
Third, how does your location impact the value of your improvements? The usual rule is that buyers seek the least expensive home in the most expensive neighborhood they can afford. A massive kitchen upgrade may result in a market price for your property, which is well above neighborhood norms, thus making the home difficult to sell.
Fourth, taste matters. Your idea of an improved kitchen may clash with potential buyers. There’s no right or wrong here, it’s just that we all have different tastes and preferences.
Fifth, how long will you live in the property? If this is where you expect to live for years to come then the real reason to upgrade the kitchen is because it makes you happy. That’s an important value.
Before making a major improvement, speak with local real estate brokers and get their opinion regarding how your proposed upgrade might impact the value of your property. You may not be selling at this moment, but a big investment may impact the ability to sell down the road.
© CTW Features
Peter G. Miller is author of “The Common-Sense Mortgage,” (Kindle 2016). Have a question? Please write to peter@ctwfeatures.com.
