The “Should-I-Renovate-or-Buy-a-Better-House” blues…
I’ve heard that a home dramatically shrinks as soon as an owners’ children start to walk. Other diminishing factors can be aging parents moving in, teenagers who want their own space and more room for your growing family.
The remodel or sell-and-buy bigger/better question can be a hard one. If you follow the steps below, you may be able to come to some rapid conclusions on the matter:
- What are the estimated costs of adding on? A general contractor or architect will be able to help you ballpark the price tag of a renovation. I recommend padding whatever figure you get by at least 10%.
- How much equity do you have in your home? If the cost of the remodel plus the cost of your purchase price will exceed the value of the home when you’re done, you may want to think twice about proceeding, unless you are in your “forever” home with no plans to ever sell.
- What are the estimated costs of moving? Understanding your closing costs for both the sale and subsequent purchase is an important data point. If you call me, I’ll be happy to provide you with a list of costs on either end as well as a net sheet on a projected selling price and an estimated closing costs statement on a purchase.
- What are the estimated costs of staying in your old home? If you plan to borrow against the home to finance the work, those financing costs and subsequent higher carrying costs should be factored into the total. If you think you need to move out of the home while the work is going on, you should also factor in the cost of your rental somewhere else.
- What are the estimated costs of living in your new home? It not only costs money to get into your new home, it costs money to keep it. Your likely-more-expensive home will come with a higher mortgage payment and higher property tax bill. Utilities and insurance premiums will also be a bit more. Add up all these costs and the decision on which way to go could become a no-brainer.
- Do you have the temperament to do a major remodel? If you’ve owned your home for a while and kept it well-maintained over the years, it may pay off to renovate. However, if you bought it as a fixer-upper and haven’t proven the best do-it-yourself handyman, you may be opening up a huge money pit as well as a pile of grief. If that’s the case, some house hunting trips are in order.