The Answer to Should I Renovate or Sell Hides in Equity Potential
You need a larger home. Perhaps your family keeps growing or your business does. You want the room to spread out, but you’ve used every available room in your home. You can renovate or sell the home you have and buy a larger one.
Your work wants you to switch offices. It would mean a further commute, but you could swing living in the same house you do now. You would need to work from home two days per week and the new job requires a dedicated office. You can renovate or sell the home you have and buy a larger one.
Should You Renovate or Sell?
In either scenario, you could purchase a new home or renovate the existing one. What decides your fate?
Looking at it from a purely financial point, equity. If the equity in your existing home exceeds the amount you owe on the mortgage, you should sell the home. If you don’t have much equity in your home yet, it won’t matter.
You Own Most of the Equity – Sell and Buy New
Let’s say you’ve nearly paid off your mortgage. You own most of the equity in the home. Let’s put it at 90 percent. When you sell the house, you get most of the money from the sale – not the bank. It all belongs to you.
You can quickly buy a new home and afford a huge down payment, which results in tiny monthly payments, or you can opt for a short-term mortgage that you can pay off quickly. This lets you transfer the equity from the existing home into the new home. You lose nothing and gain space plus a shorter commute.
You Own Little Equity – Renovate and Improve the Home’s Value
Let’s say you nab your promotion just two years after buying your home. You might have 10 percent of the equity in your home. If you sell it, you will get almost no money from the sale because you do not own the house, the bank does. That means the money from the sale goes to the bank, not to you. You’d get 10 percent of the sale price – your equity.
You could invest in your home though and renovate it. Building an addition, for example, costs about $40,000 on average in the US. It can cost less or more, depending on your design and the existing home space.
is the average cost to renovate kitchen.
You use savings and a home equity line of credit to obtain the money for the construction project. Once the construction crew completes its job, you obtain a new bathroom, closet, and two multi-purpose rooms. You can use them as offices, bedrooms, craft rooms, etc. Because they add to the living space of the home, you add to the overall value of your home.
Perhaps you know someone in construction, so you can get a great deal on the labor and a discount on materials. You swing the renovation using only savings. Because you take out no loan, you automatically own the equity.
You need to have the bank re-value the house. You update the home’s appraisal. You built the extra space and paid for it and already own it.
You increased the value of your home and the amount of it you own. Go you!
Other Considerations Besides Money
Now, of course, there’s a lot more to the decision of whether to move or to renovate. Depending on how long you resided in a home or the events that transpired in it, you might not want to sell it and move somewhere else.
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Perhaps you held your wedding reception in the house, or your child learned to walk there. You may have reared all of your children in the home or perhaps it stands as a testament to your first great achievement. Homeownership tops the list of markers of true adulthood.
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Moving causes stress. Every person already has enough of that. (I write on deadline. Trust me.) Many individuals and families want to avoid moving because of the stress involved.
Who wants to have to carefully wrap and pack every item they own? Box it up and then either rent a moving van or hire movers to truck it over to the new home? Ick.
Then you must unpack it all. Moving means redecorating even if you use the same furniture and linens you already own. Bleh.
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That all takes time. Can we all agree that there doesn’t seem to be enough time in any one day already? Who really wants to have to devote more time to something that just isn’t required?
If you choose to move to a new location, you must house hunt. You already need your finances in order. You can’t wait to sell your home to buy a new one. If you sell first, you won’t have anywhere to live while you house hunt. That means you shop for a new home while you live in the incumbent.
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Ah. Doesn’t that complicate the finances? Well, yes.
You still must pay the house payment on the incumbent home while you pay for the new one until the incumbent sells. Selling the initial home first means you would need to rent a place until you found a house. If you’ve ever priced short-term rentals, you understand that this means you lose money on the deal. So, you need the money to pay for your current home while you find the new one and begin buying it. Then you can sell your current home.
If you have a bit of equity in the initial home, you quickly pay on the new home. That reduces the burden. You’ll need to shop around for a mortgage though that does not penalize you for lump-sum payments or paying ahead on your mortgage. You can find them, but banks abhor loaning that way because they enjoy a steady income and making interest on your loan.
Finding Money for Home Renovation
Finding the money for renovating a home can prove tough, too. If you have very little equity in your home, you won’t qualify for a home equity line of credit. You might consider a personal loan that uses collateral of a different kind, like your car or an RV.
When you renovate, you can add to the value of the home. Different renovation projects add varying amounts to the home’s value. Updating or enlarging the kitchen and/or adding a bathroom increase the value the greatest amount. This contributes to the living space of the home.
When you convert a garage to a workshop, you don’t gain the same payoff. Why?
Living space.
Building Codes for Every Room Type
To qualify as a living space requires a higher building code. Adding a sunroom doesn’t require the same building code to be met as a bedroom. Every room type has its own requirements. An overall home has requirements, too. Yard space has requirements. The latter means you can only use a certain percentage of your lot for a building structure. You must provide a specific amount of space between your home and your neighbor’s home.
This can also affect whether you choose to renovate or sell. You may already use all of the percentages of your lot that you can for your home. Building up or down may cost too much to provide a feasible option. At this point, you choose to sell your current home and move to a new, larger home.
Bedroom Building Codes:
What does building up or down mean?
A common choice in Australia, building up or down refers to building an additional level to your home. You either add a second (or third) level by adding it to the top of the home, or you excavate to add beneath the home. If your home already contains a basement, you finish out the basement to create a new living or working space.
In most cases building up proves simpler. Many homes contain an attic, which a construction crew can convert into an office or living space. Although adding a bathroom can complicate the addition, feasible designs exist.
When a home doesn’t already contain an attic, the construction crew builds a second floor onto the existing home. This requires opening up the roof of the existing structure to re-work the roof as a floor for the new level of the home.
Building out, which refers to building onto the existing first level of a home remains the cheapest route. It’s also the simplest to permit.
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Permitting Needs
Every city requires permitting for building projects. Whether you can choose renovation as your means to a larger home depends on if and when your city will issue building permits to you for the work. If you try to build without a proper permit, the city can condemn your property. The city can force you to dismantle the construction. So, check for permitting issues before you begin work.
Building your dream home in your existing home might seem like the simplest solution but in some cases, it makes little economic sense. If you own little equity in your existing home, renovate if you can legally. Otherwise, sell the home and purchase a newer, larger one that affords you the space you need.
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