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?

Spending more time at home has spurred many of us to spruce up our surroundings, inside and out. Americans have been pouring money into renovating outdoor spaces to make the most of them — screening in porches, bumping out decks, installing tennis courts and undertaking total landscaping makeovers.

Overall home renovation spending continues to rise, and a growing number of home projects are outdoor improvements like landscaping, lighting and decks. According to the 2021 Houzz & Home renovation survey, 57% of homeowners tackling renovation projects included an outdoor upgrade. Thumbtack, a website that connects readers with local professionals, reports “a massive increase” in outdoor renovation projects. In many regions, installations for pools and porches have lengthy waiting lists — with accompanying price increases for the materials involved.

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, home trends expert for real estate website Zillow. “Certain outdoor features are 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. For example, landscaping can increase a home’s marketability because it reflects thoughtful care of the property.

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. 

“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 certified financial planner and Merrill Lynch Senior Vice President Laura Derderian. “You’ll want to have a plan for how you’ll pay for any upgrades.” You’ll need to 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?

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 raise a home’s expected sale price by only 0.5%, per Zillow’s 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?” 

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.

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.”

Estimate the payment for a home equity line of credit.

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