The decision to renovate or buy a new home requires research, an assessment of your own personal financial circumstances and, ultimately, a few hard choices.
There is no right or wrong to either option. Both come with significant benefits as well as a few downsides. The key influencing factors should be your lifestyle aspirations, personal wealth ambitions over a five or 10-year period, and current financial capacity.
To start, call in your real estate agent for an appraisal to find out what your current home is worth. You should also visit some open for inspections of properties in your area so you can get a feel for what’s on offer in homes that are the next step up from yours and their price points. Some online research in this regard can also be hugely helpful.
These two insights will give you some baseline numbers that will help you calculate your options and weigh up the pros and cons:
Renovating
A renovation will increase the value of your existing property but may not yield the long-term financial benefits of moving up to a more expensive home. On the other hand, every dollar you spend will add value to your biggest asset if you renovate tastefully and don’t indulge too many personal whims. Sometimes, the ambitions of a renovation become so large it is cheaper to move or knock down and rebuild so make sure you consider this option in your calculations.
- The Downside
Do you really have the money? Few renovations are delivered on budget. There’s scope-creep as you change your mind and finesse what you really want, plus the possibility of unforeseen problems that can cost big time.
Return on investment is also not a given. Revamping the kitchen and bathroom is always a tick in the box for adding value to your home, but changing floor plans needs to be done carefully. Be careful not to over-capitalise on your property. Ask yourself what your home will sell for once all these changes are made – is there a profit in it for you? If not, then buying up is probably a better way to go.
Builders also bring dust and chaos which is both stressful to live through and may create health issues (if the side of your house is open during winter for example).The disruption and stress from renovation can never be dismissed, especially major builds which may take a year.
For a major renovation, you should consider moving out and renting, or dropping anchor at a hotel for a few days to avoid the very worst of it. You’ll need to add this to your budget, and allow for contingencies if there are building delays.
- The Upside
If you love your location, a renovation can significantly improve your lifestyle in your current home. Provided you have an appropriate budget, you’ll be able to make your home exactly as you’d like it. While construction work is not cheap, if you have paid down your mortgage, you may be able to use the equity in your current loan to pay for it. That avoids refinancing or, in a worst case scenario, a bridging loan.
A renovation will also reduce some of the disruption of the move on the family with no changes to schooling for the kids and domestic chores such as shopping.
Buying Up
Moving up the property ladder delivers long-term financial benefits that require the short-term pain of increasing your debt, paying stamp duty, moving and legal fees. Use online calculators from your bank to find out the key costs of a new mortgage and stamp duty, or speak to a mortgage broker.
Don’t assume that if the market is declining, it’s a bad time to sell and move up. Often, the opposite is the case. While you might get slightly less for your current property, prices of properties in the rungs above you will also have declined. This means there can be some very good buying. ie: If you’re looking to sell your home at the $700,000 range, and buy at $1m, a 10% drop would mean a discount of $70k on your current property but yield a $100,000 saving on the $1m home – a difference of $30,000. So it’s a case of swings and round-abouts that you can capitalise upon if you play your cards right.
- The Downside
Dream homes can be hard to find and when they do appear, they usually come with rival buyers. You’ll need to say goodbye to your weekends, at least for the short term while you look for your new home. House-hunting is hard work, full of delight and disappointment. Consider a buyer’s agent, if you price your time highly.
You may also need to compromise with a new home. It may not be everything you want – both in terms of layout and location – but you take the plunge because it’s a step up the property ladder. There’s nothing wrong with that, but you want to avoid buyer’s remorse.
Taxes and moving expenses, such as legals and conveyancing, are unavoidable and will put a decent hole in your budget. Don’t discount the additional costs of a new property that needs some TLC such as paint, carpets and landscaping.
There’s also the work that comes with getting your current home ready for sale, and the going through the sale process, although your agent can offer advice here.
- The Upside
If you’re not completely in love with your location, moving is an opportunity for a fresh start and with your old home sold, you know exactly how much you’ve got to spend and the future will look bright.
You’ll be able to select a location that suits your current lifestyle, has a better selection of schools, or just a nice neighbourhood that’s a bit closer to work.
A new home can be your dream home. You simply move straight in and enjoy it from the first day. Your world doesn’t become a construction site for months on end and you won’t have the stress of arguments with builders or anxiety about when they are going to show up.
Sign up to agent newsletters so you get alerts on the latest homes to come onto the market and organise your finances with your mortgage broker so that when the perfect property appears, you’re ready to pounce.