You're at an interesting crossroads in your homeownership journey. Your current home no longer fits your needs, and you're wondering: should I renovate or should I buy something new? It's a common question, and you're definitely not alone.
You might expect me to automatically push you toward buying a new house. After all, I'm a Realtor, and we're in the business of buying and selling homes. But the truth is, it depends on several factors unique to your situation.
Key Factors to Consider
How long will you stay there?
If your renovation will extend the usefulness of your home for many years (or even until you're ready to downsize), the math works differently than if it only buys you a few more months or years.
Think about it this way: if you invest $100,000 in a renovation and it extends your time in the home for 20 years, that's only $5,000 per year. That amount could easily be absorbed by normal property appreciation. But that same $100,000 renovation that only extends the home's usefulness for 2 years? That's $50,000 per year, making it much trickier to see a return on your investment.
What type of renovation are you planning?
Renovations that improve your home's appeal to the majority of buyers will strengthen your market value. For example, taking a 2-bedroom, 1-bathroom house with an unfinished basement and adding 2 more bedrooms, an ensuite, a rec room, and another bathroom will likely attract more buyers when it's time to sell.
On the flip side, renovations that decrease broad appeal can work against you. Removing a bedroom to install an indoor hot tub, for instance, would likely narrow your pool of potential buyers significantly.
Who's your likely buyer?
This is often an overlooked consideration when thinking about adding value to your home. If your house is perfect for a first-time buyer, they probably won't be excited about paying a premium for high-end finishes or luxury additions. First-time buyers typically want a house they can make their own while building equity.
However, if your typical buyer is someone upgrading because they've outgrown their current home, they might be very interested in a move-in-ready 4-bedroom, 3-bathroom house with a large rec room for their teenage kids.
Running the Numbers
Here's what I encourage you to think about: what do you actually need in a home, and can you achieve it by renovating for the same cost (or less) than buying?
Let's walk through an example. Say you need another bedroom because your 3-bedroom, 1,000-square-foot bungalow is feeling too snug. In your desired neighborhood, a house that would meet your needs costs around $600,000. Your current home is worth $400,000.
In this scenario, you have roughly $200,000 to work with for a renovation. If you invested that money into your current home, would you be as happy with the result as you would be with a $600,000 home? Keep in mind that location matters. If you love your current lot but the house just isn't big enough, you'll need to fall in love with a new location too.
Now, if you put that $200,000 into your home but think it will only meet your needs for another 3 years, is it worth it? Will you recoup that investment when you eventually sell?
Understanding Your Neighborhood
Another critical piece of the puzzle is whether your neighborhood supports the increased value. Some areas simply don't yield homes over a certain price point. If you have a $200,000 house in a neighborhood where homes rarely sell for more than $250,000, and you invest $100,000 in renovations, you're unlikely to see that money back. In cases like that, moving to a different area might make more sense.
How I Can Help
Here's what I like to do: sit down with you and walk through the scope of your planned renovation. We'll discuss how it might add value and whether your neighborhood will support that new price point. I've seen countless renovations over the years—the good, the bad, and the ugly—so I have a pretty good sense of what works and what doesn't. I also have a great network of skilled tradespeople I can connect you with if you decide renovation is the right path.
If you're torn between renovating and buying, let's have a conversation. I'm happy to help you get a clearer picture of your options so you can make the decision that's right for you and your family.
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