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Building a Home Office for a Post-Covid World

The morning work commute for most American workers was recently reduced (and for some, eliminated) – unexpectedly, leaving many wondering if this change – once a routine that defined a member of the upwardly mobile American middle class was temporary or permanent.

According to Census.gov, before COVID-19 caused the largest time out in modern history, the average worker’s commute for an American during a measured five-year period (ending in 2019) was nearly 27 minutes. (See Below)

United States | Mean travel time to work(minutes), workers age 16 years+

26.9 minutes

Source: 2015-2019 American Community

For many, this half-hour commute represented some of the most challenging, bleary-eyed moments of the workday – highlighted by traffic snarls and angry drivers, and on special occasions, weather events that were often too dangerous to navigate.

By the end of 2020’s first quarter, most workers found their commute had magically transformed to a thirty-second stroll – from a bedroom to the space that has been rigged to meet one’s home office needs – pretty much overnight.

But note, the 2020 pandemic only accelerated what had become a growing trend that requires business models to modernize and evolve to meet current conditions if the businesses were to remain successful. The timeline that defined the push to integrate remote workers aligned with the systematic path of technological advancement, that is, until COVID became the unexpected gamechanger.

Global Workplace Analytics estimates that about 25% to 30% of the workforce will work remotely through the end of 2021.

Source

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In fact, a survey from the University of Chicago revealed remote workers’ sentiments regarding these coronavirus-imposed lockdowns:

  • 30% of the survey’s respondents indicated they were more productive and engaged when working remotely.
  • The commuting time saved, when collectively viewed, accounted for more than 62 million commuting hours per day – or a total of 9 billion hours (which is equal to more than 1 million years) saved for commuters between March 2020 and September 2020.

If your ‘home office’ revolves around a couch or the middle of the kitchen, it is time to begin to think about building/designing a home office to meet your needs, despite what may be perceived as your home’s limitations.

Remember, a well-designed, designated workspace helps reduce unnecessary interruptions and allows you to be more productive. In addition, a legitimate home office may offer a money-saving tax deduction when filing your tax returns.

Determining the Home Office’s Estimated Costs

Like most things in life, the cost and expense to create/build a home office will vary widely, contingent upon your objectives, the property’s physical layout, the business’s needs, and your budget. But most home offices are reasonably priced and won’t nearly break the bank unless you make that choice.

The first issue concerning a home office is to decide if you have a room (and which room) will be designated as the home office. Will you need to build something completely new or just need to remodel? And while there are great, cool tech options for a home office, the reality is, most home offices need these main purchases:

  • A stand-up desk
  • A laptop/desktop computer
  • An ergonomic chair
  • Scanner/printer
  • Phone & internet service, among others.

If you are lucky enough to own a home that provides sufficient space appropriately wired, plus room enough to accommodate your needs, the cost to create the home office may vary from as low as several hundred dollars to more than several thousand dollars, depending on what equipment you may already own.

However, if the workspace needs some remodeling and additional wiring to meet your bandwidth or electrical needs, the price to create a home office will be significantly higher.

The average cost to convert a room in your home to a home office is estimated to be $2,500 to $4,000. But, if you are going to build a 12’ x 12’ office with appropriate built-ins, it could run as high as $20,000.

Financing a Home Office Renovation/Conversion

Once you have determined the approximate cost to build/create a home office, the next step is to determine how to pay for the necessary work. If you are flush with cash, you can finance the expenses required to build a home office.

However, if you do not have the extra funds to create the office of your dreams, there are several ways to pull equity from your home. Consider these two options in the associated chart:

Refinance your existing mortgage and take out cash to cover the cost of the home office. Note, however, that if your current mortgage interest rate is competitive, it might not make financial sense to pay off an existing mortgage if the new rate is not as competitive – only to pull out a few thousand dollars. Considering rates are at or near historic lows, refinancing may not be fiscally prudent with the costs to close. Most lenders permit upwards of 80% of equity to be extracted by a first-position mortgage.

Here are two potential cash-out scenarios to help clarify the point – Which of the following would make the most fiscal sense when considering a cash-out refinance to finance a home office?

Scenario 1

Scenario 2

Current Value

$200,000

$200,000

Current Outstanding Mortgage Balance

$120,000

$70,000

Current Interest Rate

4% for thirty years

5% for thirty years

Funds needed to complete Home Office

$10,000

$30,000

New Cash-Out Mortgage would be

$135,000 @4%

$105,000 @4%

The second scenario would make the most financial sense as the current mortgage balance is only $70,000 – and the current interest rate would drop from 5% to 4% – the difference would help defray the cost of the additional funds required to complete your home office
Another way to take advantage of existing home equity without refinancing the existing mortgage is to take out a HELOC – a Home Equity Line of Credit or a home equity loan. A HELOC is a second position mortgage that is usually offered at a rate higher than a first mortgage but significantly less than an unsecured loan or credit card. It is also a financial option that allows the first position lien to remain in place and offers reduced closing costs compared to a larger first mortgage. HELOCs are generally variable rates, while home equity loans are offered with fixed rates as well.

In addition, using the equity in your home will allow you to deduct the interest paid – if the money is used for home improvements. [See IRS Guides]

Alternative Funding Options

Your employer may be willing to offer assistance if you are employed since the home office ultimately benefits the employer.

Self-employed or business owners may find funds available from the Small Business Administration (SBA), an agency maintained by the Federal government. The SBA provides a variety of small business loan programs to help small business owners. The SBA 7(a) program offers upwards of five million dollars for expansion, renovation, or new construction. The Microloan from the SBA offers loans up to $50,000 to help with office supplies/furniture.

If you have no or little equity to access and are without available savings to pay for the cost to complete the home office, a personal loan may work. However, interest rates will be higher than collateralized loans (i.e., mortgages). Rates vary and depend on one’s credit profile and overall financial scenario.

Although a challenge, there are ways to use available credit from credit cards responsibly, with no or low interest, if your credit meets guidelines. Most credit cards are used to finance laptops or printers because the interest on more significant charges with a credit card’s higher interest rate can add up fast.

Recognizing if the Home Office is Tax-Deductible

While a home office tax deduction is a helpful perk to help recoup some of the home office’s expenses, the reality is it only applies in certain instances. However, it is available to homeowners/renters of all types of homes.

To be eligible, the IRS requires the following:

  • The home is used as regularly and exclusively as a home office.
  • The home is the business’s primary location to conduct business.

If you qualify for the IRS deduction, these items can be deducted:

  • A one-time cost for the materials required to build or furnish the home office – note, this does not include the labor cost.
  • For homeowners – the yearly mortgage interest, property taxes, applicable depreciation, and insurance (for the upcoming year) are prorated to the percentage of the home you use as a home office.
  • For renters – the year rental cost, plus repairs, maintenance, and utility bills, are prorated to the percentage of the space used as a home office.

Step 1: Choose the Space

The choice of location for your home office is largely contingent upon the home’s layout and available space. Many workers choose to repurpose an existing space into a new home office from these locales:

  • An extra bedroom – an unused bedroom is usually already wired and has available lighting, which makes it an excellent choice for a retrofit.
  • The basement – basements offer a clear separation in a home, although they may be challenging in terms of lighting and temperature issues.
  • A closet – smaller homeowners often convert a closet into a built-in home office.
  • A partitioned area – larger rooms or open spaces may work well with a room divider to section off a portion for use as an office.

It is essential that the chosen space is quiet and removed from high-traffic areas. Space should be ergonomically designed to offer the healthiest of work environments.

If clients are visiting your home office, select a space with easy access without the need to pass through the home’s personal areas.

STEP 2: SELECT FURNITURE & TECH INVENTORY NEEDS

FURNITURE

The basic furniture required should include the following:

  • A desk – the home office hub comes in limitless varieties, although it may pay to invest in an adjustable standing desk to help provide health benefits.
  • An office chair – an office chair should offer comfort and support. Ergonomic chairs are typically the best option because they can roll, swivel, adjust and have built-in lumbar support.
  • Storage cabinets – organization, helps productivity.
  • Accent chairs & tables – if your home office involves visits from clients, the office area should have a comfortable space for clients.

TECHNOLOGY

Although each business will differ, these are the basic tech essentials for each home office –

  • A laptop – a reliable laptop is an essential tech need, which allows you to take your work with you, from room to room to across the country. Select an appropriate screen size and make sure its resolution is easy on the eyes.  Add a laptop stand that elevates the laptop, alleviating the need to hunch over. Decide if you want to add a wireless mouse and keyboard.
  • A power strip – a small but simple item, the power strip offers surge protection that will ensure your electronics are kept safe.
  • A printer – printers are available in all shapes and sizes, most offer printing, scanning, and faxing capabilities.
  • A phone system – consider getting a landline specifically for your business.
  • Noise-canceling headphones – your home office may be separated physically but still be within an earshot of household noise. Check out these noise-canceling headphones that can help block out external noises.

STEP 3: FIND THE PROPER LIGHTING & ADD FINISHING TOUCHES

Once you’ve arranged for your ergonomic comfort in the home office and the technology is up and running, it is essential to have the proper lighting for your work area.  If there is natural light streaming from the room’s windows, this is ideal. But the room will also need additional lighting for cloudy days or nighttime use. Avoid fluorescent lights as they have been found to cause eye strain and even trigger migraines.

Many businesses have learned to operate using video conferencing, which, in and of itself, will require appropriate lighting.

Although not a requirement, include uplifting design elements that help keep you inspired during the day.

THE TAKEAWAY

A home office must be productive and professional. And because you are looking to improve your home, it might be helpful to consult with a real estate professional who can offer guidance concerning the ways to maximize the value of the home for resale at a future date when renovating.

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