Assessing Alternatives - To Buy Or to Renovate?

This is a common dilemma for many homeowners when faced with the necessity of a major home renovation. The decision will have to be approached from two perspectives. You will have to look at your emotional attachment to your home and the financial implication of your decision. You have to follow a two-step process where you will be able to take into account all possible scenarios that are associated with each of the two options.

This major decision that you have to make is even more significant owing to the current downturn that is plaguing our economy. Both buying a new home and renovating the current one have their own share of pros and cons. It is also a very stressful undertaking. The best way to approach the situation is to decide on the bigger issues first. Decide what your goals are and where you want to live.

Once you are able to clarify your intentions and plans for the future, you can easily determine which of the two alternatives matches with your intentions and plans. For instance, if you have already developed a strong attachment with your current community, then renovating your home can be your ideal choice. However, you must make sure that the value of the renovation is in consonance with the prevailing value of similar properties in the neighborhood.

There are three major variables that you must take into account when making your decision. These are the financial variables, non-financial variables and the resale value of your home.

Financial Variables

This is the most important variable for most homeowners. You decision shall be influenced by your assessment of the financial viability of your alternatives. You will look at the decision process purely as a financial issue where you will weigh your benefits against the projected financial costs.

As a general rule, the cost of moving to a new home is equivalent to 10% of the present value of your current home. This will include among others moving cost, land transfer tax, real estate commissions, and other legal costs. If the aggregate cost is higher than the renovating cost, then you may be better off going for home renovation.

Non-Financial Variables

These are the intangibles which can not be included in your financial computation. In a way, these are the variables that can sway your decision to a particular option when the numbers that you get are not enough to favor a particular alternative. Will you be able to cope with the stress and negative impact of moving your family to a new home? Is your decision to buy a new home consistent with your long term goals?

Resale Value

This is somewhat related to the first variable - financial variables. Your home is probably your single and most important investment. You will have to look at the resale value of your home when deciding whether you are going to renovate or just go for an upgrade. For instance, moving up in the real estate market may be your practical option as the value of home properties are still at the lower end of the scale. This means that you can buy an upgrade at a price which is 25% below its real value. You must also be conscious of the location of your new home, for this will largely determine how your investment will perform in the short term as well as in the long term.

When you decide to renovate your current home, you must decide which renovation job adds most to the resale value of your home. Kitchen and bathroom renovation can potentially add to the value of your home, which is equivalent to 100% of the renovation cost. A family room or basement is also a financially viable alternative. On the other hand, landscaping jobs don’t significantly contribute to the resale value of your home, and is only equivalent to 25% of the total cost of the project

Learn how to sell your own house here: For Sale By Owner

If you’re looking to buy a home from an FSBO listing check here: FSBO Listings