Buy Now, Pay Never...

Granite countertops may have replaced the stock market as the investment of choice among American homeowners, who are moving their money into the best performing investment there is today: their homes. In turn, remodelers may be replacing stockbrokers as investment consultants. Like the stock market, some investments appreciate more quickly than others. In some housing markets, prices double in a year or two. In others, it takes longer.

Either way, current tax laws allow individuals to buy a home with borrowed money, live in it for two to five years, sell it and keep the profits tax-free, whether or not they buy another home. As might be expected, there are some limitations in the amount of non-taxed earning: up to $250,000 per individual or twice that for a married couple.

Unbelievable as it sounds, remodelers can make this possibility even more attractive for certain prospects.

While qualifying prospects, ask them "How long do you see yourself living in your home?" I once believed that homeowners who indicated an intent to move in the near future would tend to spend less money on remodeling and were less likely to do more extravagant improvements. These days, creative remodelers with expertise in home-improvement financing are turning homeowners into real-estate speculators.

Clients thinking about selling might splurge on more than the necessities if you could show them how to:

• Remodel their home to match their dreams. This is what remodelers do every day, via presentation books, design software and other sales tools.

   

• Enjoy their improvements until they sell with little or no out-of-pocket expense. Depending on your capabilities, either arrange for or steer these clients to financing with low or no payments for whatever time frame suits them. For example, some lenders offer deferred payment home-improvement loans, with no payments and no interest charges for one year, and no penalty for paying off the debt in full at or before the time the first payment is due. A good credit history and a signature may be the only real requirements.

   

• Sell their home more quickly. A newly modernized home sells more quickly than something older, especially when the improvements are professionally installed.

   

• Recoup most or perhaps all of the cost differential between a basic remodeling project and a more extravagant project at the time of sale. Arm yourself with data from a local real-estate agent or the report "Which improvements pay back?" (found at http://houseandhome.msn.com/improve/whichimprovementspayback.aspx) and share this information with your prospects. For example, a major kitchen remodel reportedly averages a payback of 90 percent. If the dream kitchen costs 90 percent more than just a cosmetic makeover, shouldn't you suggest that the best investment would be the entire makeover?

  The client gets a great kitchen for a year, ultimately recovers the extra costs at the time of sale, and you can arrange for them to defer payment until they're done enjoying it.

  If the plans for the move change after the one-year time frame, the homeowners simply make the payments starting after the deferral period.

   

• Put all or part of the gain in their pockets tax free. Of course if the clients were buying another home, they could easily roll over any gain on this home into their new home. If the new improvement increases their gain, there should be no tax pain.

Making the Sale