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How to create – and fund – your own backyard oasis

More homeowners than ever are investing in outdoor projects. Which upgrades could make the most sense for you, and what might be the best way to pay for them?

MANY OF US CAME AWAY FROM THE PANDEMIC with a heightened appreciation for the role that our homes’ outdoor spaces play in our lives. One upshot of this? Americans have been pouring money into renovating these spaces to make the most of them — screening in porches, bumping out decks, installing tennis courts and undertaking total landscaping makeovers.

 

Almost six in 10 affluent respondents to a recent CivicScience survey anticipate making home and garden improvements in the next year. And Thumbtack, a website that connects its customers with local professionals, reports “a huge spike in demand” for outdoor renovation projects. In many regions, installations for pools and porches have lengthy waiting lists — with accompanying price increases for the materials involved.

 

Katherine Owen headshot
“Many outside projects add value to the home immediately and increase its value as time goes on.”

—Katherine Owen, senior vice president and chief appraiser, Consumer and Small Credit Business Risk, Bank of America

Despite the rising costs of outdoor projects, lately it has been hard for homeowners to go wrong financially by investing in them, says Amanda Pendleton, trends expert for home valuation website Zillow. “In 2020, outdoor features were associated with homes selling faster than expected, and for more money than expected,” she says.

 

In fact, outdoor improvements can often provide a positive return on investment, adds Katherine Owen, senior vice president and chief appraiser, Consumer and Small Credit Business Risk, Bank of America. “Landscaping reflects the thoughtful care of a property and can increase its marketability,” Owen says. “Never underestimate curb appeal,” she adds.

 

While contractors note that some projects, like adding a fire pit or building a pizza oven, are relatively inexpensive, others such as a major landscaping job or a pool — with furniture, fencing and the works — can easily run tens of thousands of dollars. (For the estimated cost of some popular improvements, and a rough guide to the impact they might have on your home’s value, see the slideshow below.)

 

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Note: Sources: Home Advisor, Arteverde.com, Fixr.com, Homeguide.com, Zillow, 2021

 

“And keep in mind that money spent toward home improvements may take away from other financial goals such as retirement or saving for college,” says Merrill Financial Advisor Laura Derderian. “You’ll want to have a plan for how you’ll pay for any upgrades.” Your advisor can help you think through the costs and potential tradeoffs, as well as ways you can consider funding the project.

 

Are you investing in your home’s value or your own pleasure?

The first thing you need to ask yourself, says Derderian, is whether the project is primarily for future buyers or for you. If your objective is personal enjoyment, follow up with a few practical questions before you commit: Given your area’s climate, for how much of the year will the improvements extend your living area to the outdoors? Do you plan to stay in your current home long enough to justify the expense?

 

If you’re renovating with the thought of ultimately making your home more attractive to potential buyers, keep energy efficiency top of mind as you plan.

Also consider the cost and time commitment of regular maintenance, she counsels. Will you clean the pool and weed your new landscaping yourself? Or will you pay others to do it?

 

Upgrades that new owners will appreciate, too

If you’re renovating with the thought of ultimately making your home more attractive to potential buyers, one priority is to keep energy efficiency top of mind as you plan, says Owen. “Whether you’re installing a covered patio with solar on top, or thoughtfully placing large trees that provide shade, being able to show buyers the impact on their utility costs can make a big difference.” On the other hand, she adds, “Water features are beautiful, but in areas prone to drought they may potentially increase your monthly expenses and decrease the property’s marketability.”

 

Also, be aware that not all outdoor upgrades have the same potential to lift your asking price when the time comes to sell. Swimming pools, for instance, have high installation and maintenance costs, but only raise a home’s expected sale price by 0.5%, per Zillow’s 2020 research. In addition, Derderian says, “Potential buyers could see a pool as a headache or a safety issue, so it definitely limits the market.”

 

Options for financing the project

The next big choice is, which of the many available ways of funding is appropriate for your situation? Derderian’s advice: “Ask yourself some questions. If you’re younger and still working, can you finance the project through cash flow, bonus or stock plans? If you are retired, will you have cash flow from pensions, Social Security or portfolio income?” An advisor can help you look at the particulars of your situation.

 

With interest rates remaining low, if you have built up a sizable amount of equity in your home you might consider a home equity line of credit (HELOC), she says. Recently, one of her clients, a couple preparing to retire, wanted to expand their outdoor area to accommodate visiting adult children and their grandchildren. After consulting with Derderian, they decided to finance their upgrades by taking out a HELOC while temporarily lowering their monthly contributions to their portfolio. They’re now aggressively paying the HELOC down so they can bring their portfolio contributions back up.

 

Another option: Instead of selling investments, which may trigger a tax bill, you may want to consider a Loan Management Account® (LMA® account), offered by Bank of America. It’s a line of credit pledged against your investment portfolio that can allow your investments the potential to keep growing and prevent the need to pay capital gains taxes. Your advisor can help you understand the potential risks involved in opening an LMA.

 

Whatever changes you decide to make, and however you decide to finance them, “ultimately, with anything outdoors, it’s really about upping the joy factor,” says Derderian, who is considering adding some garden areas to her home in advance of her own retirement. Nature is a lot like investing, she adds. “The best time to plant a tree was 20 years ago. The second-best time is now.”

 

Bank of America, Merrill, their affiliates, and advisors do not provide legal, tax, or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions.

 

The Loan Management Account (LMA account) is a demand line of credit provided by Bank of America, N.A., Member FDIC. Equal Opportunity Lender. The LMA account requires a brokerage account at Merrill Lynch, Pierce, Fenner & Smith Incorporated and sufficient eligible collateral to support a minimum credit facility size of $100,000. All securities are subject to credit approval and Bank of America, N.A. may change its collateral maintenance requirements at any time. Securities-based financing involves special risks and is not for everyone. When considering a securities-based loan, consideration should be given to individual requirements, portfolio composition and risk tolerance, as well as capital gains, portfolio performance expectations and investment time horizon. The securities or other assets in any collateral account may be sold to meet a collateral call without notice to the client, the client is not entitled to an extension of time on the collateral call and the client is not entitled to choose which securities or other assets will be sold. The client can lose more funds than deposited in such collateral account. The LMA account is uncommitted and Bank of America, N.A. may demand full repayment at any time. A complete description of the loan terms can be found within the LMA account agreement. Clients should consult their own independent tax and legal advisors. Some restrictions may apply to purpose loans and not all managed accounts are eligible as collateral. All applications for LMA accounts are subject to approval by Bank of America, N.A.

 

Before taking out any mortgage or line of credit, borrowers should consult their tax advisor to understand the implications of each of their options.

 

Banking, mortgage and home equity products offered by Bank of America, N.A., and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation.Home Icon for Equal Housing Lender Equal Housing Lender. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice.

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