The decision to remodel 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 – as your neighborhood agent, I’d love to provide you with this expert service.
You should also visit properties like yours that are on the market now to get a feel for the competition and the price range. Some online research can also help.
These two insights will give you a baseline to help you calculate your options and weigh up the pros and cons:
Remodeling
A remodeling project should 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 remodel tastefully and don’t indulge too many personal whims. Sometimes, the ambitions of a remodel project become so large that it’s cheaper to move, or knockdown and rebuild. So make sure you consider all your options.
- The Downside
Do you really have the money? Few remodeling projects are delivered on budget. There’ll be scope-creep if you change your mind or finesse what you really want, plus the possibility of unforeseen problems that can be costly.
Return on investment is also not definite. 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-capitalize 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.
Contractors also bring dust and chaos, which is both stressful to live through and may create health issues. The disruption and stress from remodeling should never be dismissed.
For a major project, you should consider moving out and renting, or booking a room 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, then remodeling 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 remodel will also reduce some of the disruptions of a move on the family with no changes to schooling or your commute to the office.
Buying Up
Moving up the property ladder delivers long-term financial benefits that require the short-term pain of increasing your debt. Use online calculators from your bank to find out the key costs of a new mortgage, or speak to a lender.
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. For example, if you’re looking to sell your home in the $300,000 range, and buy at $500,00, a 10% drop would mean a discount of $30k on your current property but yield a $50,000 saving on the $500,000 home – a positive difference of $20,000.
So you can capitalize 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. House-hunting is hard work, full of delight and disappointment.
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 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 stress of going through the sales process.
- 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’ll know exactly how much you’ve got to spend.
The future will look bright. You’ll be able to select a location that suits your current lifestyle, or is a neighborhood that’s closer to your job.
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 contractors.
If you’d like me to help you find your dream home, or would like an appraisal on your current home, let me know. I’d love to make that happen for you!