“We bought our 2 bedroom home fours years ago when we were about to start a family. Now that we are expecting a second child we need to decide whether to add a room on the back, convert the garage, or sell and buy a larger home. Our home is probably worth over 50% more than we paid. Can you give us some help in making this decision?”
—A Palisades homeowner
Growing families ask about this more frequently than about any other single issue. My initial response is to explore all options that would enable staying in the current home. If they like their location, it can be the more practical choice and usually costs less than to sell and buy. However, there are several aspects to consider in making this decision and owners often decide to buy another home rather than go through all that it takes to redo their current one.
One of the Most Important Issues is the Neighborhood
Is this where you would like to continue to live for many years, or would you like to look into other areas that may be more convenient, have less traffic, larger yard, different outlook, and so forth? Would you like to move just to enjoy a change of location? It is important to consider the risk of over-improving a home. It may not be wise to create the “best house” in the neighborhood from a strictly financial point of view. You might also consider whether it would be too large for its context.
The Size and Usability of Your Property is Another Important Factor
- Is your yard large enough for your growing family?
- If you remodel your present home, would it take up part of the yard?
- Does your current floor plan basically work, or would it need to be substantially reconfigured as part of a remodeling process?
- Would the costs be greater than justified for a remodel?
- Are there other aspects of your home that you do not prefer other than the size?
- Have you had any contractors or architects give you some options?
- They can give you suggestions and rough estimates as to costs of each so you will have a clearer idea of the alternatives.
Doesn’t it All Come Down to the Money?
Many people feel the decision to move or remodel should be based only upon the financial differences. Among the factors to consider are the feasibility of the remodeling plan, the potential return on the cost of remodeling and additional costs. Since the work often can take close to a year, an extra cost of perhaps $50,000 should be budgeted for rent. Also, it is prudent to be prepared both emotionally and financially because remodeling seems to end up costing much more and taking longer than originally planned.
If you decide to move, there will also be extra costs involved in the sale and purchase processes. The costs of selling can be approximately 7.25% of the sale price, and buying another home can cost in the range of 1.5 – 2% of the purchase price, in addition to your actual purchase price. Also, property taxes will likely be higher on the new home than they would be on your present house even after doing a major remodel.
Therefore, from a strictly financial point of view, it may be helpful to consider the total known costs to complete the remodel job and compare it with the alternatives available to purchase. When comparing be sure to take into account the current value of your home.
The Decision is Clearer for Some Families Based Upon How Well They Can Deal With Major Disruptions in Family Life
Any large remodeling project is so intrusive that moving might be mandatory unless it did not involve the kitchen and main family areas. Of course, moving is also significantly disruptive and it will take a great deal of effort to find, arrange, and then move to a new house.
Would a major remodel of your home be a good investment? The answer depends on many factors, but in general, most costs will not be recovered with profit in the short term. The immediate return on the costs may be only 75 – 90%. Of course, over time your investment will appreciate in value.
Those are some issues that may help you in deciding whether to remodel or move. This is a complex decision requiring careful thought based on sufficient information. Let me know if I can be of further help.