Buy a new house or renovate? Great advice offered on this blog post.
Whether you're living in Peoria, Arizona or elsewhere, one of the most common conundrums homeowners face when running out of space, or, facing a lifestyle change, is whether or not to refinance and remodel, or move. It's not an easy decision, especially if you're fond of your current home. Commute times, new school districts, and more possible changes must be considered. The general rule of refinancing is it should have a return on investment in two to three years. That's the amount of time it take to recoup closing costs in trade for a lower interest rate. However, when you refinance to remodel, it completely changes the equation. You're now tapping into your equity, though, still expecting a return on eventual resale or recoup through long term appreciation.
Refinance and Remodel or Move?
That's really the ultimate factor -- long term realization. If you're happy with your current property and are willing to endure all the inconvenience of remodeling, it could be worthwhile. It's also important to look seriously at another consideration -- your neighborhood. If your home is near the top of the neighborhood price range, improvements could well be a bad decision because you risk over-building.During the economic slump, home improvement spending slowed, so contractors were willing to cut deals to stay busy. Today, they’re less willing to bargain on price and too busy to accept low-profit jobs. In addition, the cost of construction materials may be going up. In a recent National Association of Home Builders survey: 81 percent of contractors were concerned about rising materials prices 65 percent were concerned about rising labor costs. --House Logic.com
Keep in mind, the biggest, most extravagant home in an average neighborhood likely won't bring what it would otherwise be worth. Although, if your home is right in the middle, then a remodel might be a viable option. On the other side of the equation is moving. While you'll incur some out-of-pocket expenses, you'll probably still enjoy a lower interest rate while moving-up in home. Here are some more considerations to take into account:
- The real cost of remodeling. First, there's little getting around contingencies, which are nearly inevitable. Even if you have the budget to cover those surprise costs, you'll still not recoup all of your investment. For instance, a major kitchen remodel averages $53,170, but returns $38,156, or, 72.0 percent. Then, there's the hassle factor -- you'll have to temporarily relocate your kitchen appliances until the space is nearly completed. Be prepared for preparing meals in the garage, in the basement, or elsewhere while the kitchen is under construction.
- Livable square footage and energy efficiency. If you do remodel, you'll have to consider what livable square footage you'll gain or lose. In addition, even if you do upgrade to new appliances, you'll also have to update your insulation, windows, and doors to realize true energy efficiency.
- Using equity to upgrade. If you sell and move, you'll be able to use your property's equity to put toward a new home that will provide you with more space. What's more, if you time it right, there might be tax advantages to buying a bigger home.
To help you make the right decision for your lifestyle and your budget, speak with a licensed contractor and talk with a professional real estate agent about selling and buying. Don't let this be an emotion choice, but an informed decision.