While many people upgrade their homes at some point, the rich approach their own renovations differently than regular folk do.
Spending on home renovation is predicted to increase dramatically from 4.3 percent to 7.6 percent according to the Harvard Joint Center for Housing Studies. And according to a survey of 1,258 homeowners released in March by LightStream, 62 percent of homeowners are planning some renovation this year — an increase of 9 percent from last year.
But unlike the typical homeowner, the top one percent undergo renovations with abandon. These wealthy re-designers don’t concentrate on whether the work they are doing will increase the value of their home for resale. Luxury homeowners tend to care more about their own comfort and living desires, and not what future buyers may want. Middle-class homeowners, on the other hand, tend to renovate based on materials and finishes that will increase their property’s overall value.
In a recent Wall Street Journal article, Diane Saatchi, an associate broker at Bridgehampton, New York-based Saunders & Associate explains, “Wealthy people not only can afford to renovate but expect to. You buy a $25 million house and you put in a new gym for $800,000 because you’re tired of the old gym in the basement and you want an outside gym.”
Another difference in the approach to upgrading interiors between the classes is how homeowners pays for them. To pay for renovation work, wealthy property owners typically rely on refinancing or a home equity loan, instead of waiting for a bonus or windfall from a property sale. While some choose to go the cash route, because of consistently low interest rates, “even the rich sometimes may choose to refinance or get a home-equity line of credit or loan to avoid cashing out stocks, which may be appreciating at a higher rate. A sale would also trigger capital-gains taxes,” explains Mike Chadwick, president of Unionville, Conn.-based Chadwick Financial.
Chadwick offers some helpful considerations for those considering a luxe renovation, including paying attention to higher deductions, unsecured loans and paying as you go.
The bottom line is certainly no shocker: The rich want what they want when they want it. And are savvy enough to figure how to pay for it in the most beneficial way possible.