·:[ The Judy Niemeyer Team Blog ]:·
• • • • •

Should you move or remodel?

Excerpted from Bankrate.com

Costs, children, neighborhood, emotions — deciding which home option makes the most sense is complicated. Here, experts explain how to sort it out.   It happens suddenly, over a cup of coffee and the morning newspaper, or perhaps as you make your way across the obstacle course of clutter that was once your living room. Your house doesn’t fit your needs, and you can’t deny it anymore.

It’s time to make a hard decision, one potentially worth thousands of dollars. Should you move, or should you remodel? The typical family faces this decision several times in life. The first milestone tends to be when children arrive. The standard American lifestyle is to buy a starter house, but when kids come along that starter house may not be big enough anymore.

Children become teens, and shared accommodations soon feel more like an invasion of privacy than a slumber party. Within a few years a third challenge hits: college. As children move away for school or into their own apartments, the large, teenager-friendly house suddenly feels too big. It may be time to downsize or perhaps convert Junior’s bedroom into that hobby utopia you’d always dreamed about.

Finally, families often face the prospect of becoming caretakers for an aging relative, or perhaps a spouse falls ill and the home needs to become more accessible. Time for yet another change.

Should I stay or go?

One of the best places for a family to start its evaluation is with the physical layout of its existing property. Many communities put limits on how big a house can be in relation to its plot of land.

A number of homes are already being built to the dimensions of what can be done. If your house is as large as it can be, planning an addition would be out of the question — you will need to work within your existing footprint or move. On the other hand, just because you are able to expand your home doesn’t mean it’s a good financial move.

First, get a cost estimate. Then figure how much that work would add to your home’s value. Finally, compare your new value with comparable home prices in your neighborhood. In some neighborhoods, you just won’t get your investment back.

Home values are falling in many areas across the country now, too, but not in others. But all homeowners should tread with extreme caution if they own one of the most expensive houses on the block. Almost without exception, if you have a viable neighborhood and if you are bringing your home up to or slightly above neighborhood standards, from the financial side, you almost can’t go wrong by renovating. On the other hand, if you already have the biggest, nicest house in the neighborhood, then to go in and change that house has some drawbacks. You won’t get it back on resale.

That’s because neighborhoods support only so much expense for a particular house. If homebuyers want to spend $500,000 on a house, they will spend it in a neighborhood filled with other $500,000 or even $1 million homes, rather than $250,000 homes.

The worst-case scenario would be doing a renovation and ending up with a home worth less than you put in plus an outstanding mortgage balance, and then being forced to move because of a job change or other life event. It really depends on where your market is. You might not get your investment back.

When to remodel

A remodeled home could appreciate by $100,000 or even $150,000, depending on what changes the owner makes, offsetting the expense of sprucing things up. The remodel could end up being financially neutral even after borrowing a huge sum to pay for renovations. Even if renovating makes sense, ask if you are financially ready to lay out the amount of cash required to do the work. A $100,000 addition might increase the value of your home dollar for dollar, but if you can’t afford that cash upfront, you will never get the job off the ground.

One way to ensure you keep your remodeling job in touch with reality is to consult the annual list published by Remodeling magazine and the National Association of Realtors. The list evaluates how much return you can expect from a given home improvement. Some jobs, such as regular maintenance, better siding and minor bathroom renovations, for instance, return more than 80 cents in value for every dollar spent. Others, such as adding a sunroom or a pool, return less than 60 cents on the dollar, or worse, depending on where you live. Anything beyond what you will get back through appreciation is a true expense.

The difference is a question of land value versus structure value. Land appreciates the most, the house not as much. So staying on your existing property and improving the home itself could mean a substantial tax savings compared with moving to a new home where the taxable value could increase.

A decision to remodel or move comes down partly to emotions and partly to finances. One of the first things you should ask yourself is if you really like the location your house is in right now. Consider your neighborhood, the schools and whether your home is average or below cost for your neighborhood.  If you like all of those aspects, then it is likely you can remodel and keep the things you like and improve on the things you might not like so much, size, amenities, etc.

But even if you are in love with an area and you would certainly get your money back, it might not make sense for some people to commit to a potentially life-changing remodel. You really need to be honest with yourself. Do you want to go through the mess and headache of a remodel? You have to realize, things will go wrong. It will cost more than you thought. It will be a nightmare. And then when it is done, it will may or may not be beautiful.

When to move

Even with the increase in home value that a renovation can deliver, there are some things you just can’t renovate away. Look at land size, location, schools, neighborhoods filled with ugly houses and no trees, those are things you can’t change readily. If those are the issues you want remedied, then a move might make the most sense. If you’ve always dreamed about living at the top of a hill, there is nothing you can do to change your flat street.

Hating your neighborhood might not be the only reason you would want to go house hunting. Say your house was built in the 1950s and they used lead paint. Does your state law require you to strip the paint? Do you have to move out while the work is ongoing? What if you have asbestos insulation? These are things you might not want to touch.

Moving isn’t all that much easier than remodeling, but it is quicker. You have to pack up. You have to unpack. Selling a home is also invasive. But we have all moved before, so we are more comfortable with that transaction. You just need to weigh what you would hate less.

In a study in 1998 commissioned by The Wall Street Journal, it was found that maintaining a typical home more than 30 years often costs more than four times the original purchase price. A daunting figure, but maintenance alone is no reason to move. The repair costs may be deferred in a new home, but you have to remember that a bigger house takes more upkeep, and you may not be getting the benefit you think you are by moving.

If you are moving to an existing home, rather than new construction, not only will it be bigger, it will also likely have the same maintenance issues your old house did but on a larger scale. It may even cost you even more.

The emotional bottom line

With some financial decisions it makes sense to remove yourself emotionally and just do a cost analysis. Yet a house is a different matter. A home, while an investment, is really about lifestyle first and an investment second. The decision of moving versus remodeling is: Does your current home, if remodeled, make you happy? If your home, even if remodeled, doesn’t meet your needs, and if you can afford something else, then move.

Many people decide that moving makes more sense, even at a cost.  This is particularly true for middle-aged people, because they are now in a position in their lives to pay a premium for happiness. In your 20’s or 30’s you can’t buy the home you want and are forced to buy something that might be smaller and less glamorous than you would like.  But most of us come home seven days a week. And if you come in and say, ‘I love this place,’ then there is a lot you can overlook. But if you walk in and say ‘I hate this place,’ then it is probably best to move.