If you are looking to upgrade your home, should you relocate or renovate?
The decision to move or improve always involves many factors, such as your commute, your kids' attachment to their friends and their school and, most importantly, the cost. There are also several compelling reasons to stay in your home and renovate, rather than sell and buy a new home:
- Spend less cash: Buying a house with the desired additional features would cost on average $145,000 more than the proceeds generated from the sale of your current home, according to RemodelorMove.com's spring 2011 U.S. Homeowner Sentiment Report. The same survey shows that undertaking a renovation to accomplish the same goal would cost more than $100,000--still a hefty price tag, but potentially far less than moving.
- Keep your mortgage: Some homeowners--particularly those who have already refinanced to today's mortgage rates--may prefer to keep their current mortgages rather than shop for new homes and new home loans with long terms.
- Don't risk not selling: If there is one hard-won lesson from the housing crisis, it is that you cannot count on selling your home when you want to (or at the price you want). If your upgrade is contingent on you selling your existing home, you may not be able to go through with the buy-and-move strategy.
- Keep your neighbors: For some this is not a plus, but the homeowner sentiment survey showed that the majority of homeowners like their location and are very satisfied with their current neighborhood and schools.
Return of home improvements
Plenty of homeowners wish they could change key features of their home, including additions or remodels of bathrooms, bedrooms or kitchen.
Homeowners are increasingly pulling the trigger on these remodels. Harvard University's Joint Center for Housing Studies, which tracks remodeling activity, projects increasing expenditures on home-improvement spending (in addition to home maintenance and repairs).
3 popular renovations and what they cost
Popular renovations range from basic to upscale. Below are three of the most-desired renovations, according to the Homeowner Sentiment Report, as well as the percentage of homeowners who want them. Also listed is the projected return on investment (ROI), according to Remodeling magazine's 2010-2011 Cost vs. Value report.
1. Adding a bathroom
How many homeowners want this: 57 percent
What it could cost: Bathroom additions cost, on average, $40,710 for mid-range 6-by-8 bathrooms, or as much as $78,409 for upscale 10-by-10 projects. Features that take the tab skyward include multijet or steam showers, expensive stone and woodwork, custom tiling, flat-screen TVs, sound systems and even fireplaces.
ROI: The return on investment on extra bathrooms averages only 53 percent, so you will want to carefully consider how badly you want and need the extra room. The payoff depends partially on how many bathrooms you already have--going from one to two bathrooms in a three-bedroom house will return more than increasing from three to four bathrooms.
Remodeling an existing bathroom costs less and pays more. On average, a basic job costs just $16,634 and returns 64 percent, while an upscale redo runs $53,739 on average and returns 57 percent.
2. Overhauling your kitchen
How many homeowners want this: 49 percent
What it could cost: A mid-range project may involve replacing cabinet fronts, drawers and hardware, as well as installing a new wall oven, cooktop, counter tops, sink and faucet, wall covering and flooring. The national average of such a kitchen facelift is $21,695.
A major overhaul could mean gutting the interior and putting in the best of everything. A partial list includes top-of-the-line custom cherry cabinets with built-in sliding shelves, stone counters with an imported ceramic or glass backsplash, a built-in refrigerator, a cooktop and 36-inch commercial-grade range and vent hood, a warming drawer, a trash compactor, a built-in microwave and convection oven, snazzy new lighting and cork flooring. The average price tag of this high living is $113,464.
ROI: The mid-range project described above could return 72.8 percent, and the major overhaul could return 59.7 percent.
However, in certain neighborhoods, a dated kitchen can kill your home's chances for a quick sale. The National Association of Realtors says that, in cases where upgraded kitchens are considered standard by homebuyers, a kitchen renovation could return more than 100 percent.
3. Add a bedroom (or two)
How many homeowners want this: 46 percent
What it could cost: If you have an attic you can convert to an extra bedroom, you are in luck. The renovation costs $51,428 on average.
However, a mid-range master suite addition will run you about $108,100, while an upscale job could cost you up to $232,100. High-end amenities might include a spacious sleeping area with a lounging/sitting area, a large master bathroom, custom bookcases, built-in storage, a high-end gas fireplace with stone hearth and custom mantle, and a large walk-in closet/dressing area with natural light, mirrors and linen storage.
ROI: Will it pay? That depends on your region, city and neighborhood. In general, these projects pay off best in the south-central and southwestern parts of the country and in more expensive parts of town. For example, in Dallas, a $93,000 master suite addition adds more than $66,000 in home equity, about a 71 percent return. But it brings less in the east-north-central cities. In Cleveland, for instance, a $114,200 master suite addition recoups about $62,500, a 54.7 percent return.
How to pay for a home renovation
Home equity loans are the obvious choice for folks who can qualify. But qualifying for a home equity loan is easier said than done, especially if you have a limited amount of equity.
Those who need basic to mid-range improvements can look into the Federal Housing Administration's (FHA) 203(k) loans. These FHA "rehab" loans let you refinance your home at today's mortgage rates and wrap in much of the cost of your improvements at the same time. There are also special loans for energy-related renovations, as well.
For some, the age-old decision of whether to move or improve is all about the numbers. But homebuying is very much an emotional decision. Even if moving to a bigger home will save you money in the long run, you still must decide if you are willing to leave your neighborhood, and possibly move your kids into a new school where they will have to make new friends.
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- A Home Improvement Loan with No Home Equity?
- Should You Stay or Go? Renovation vs. Relocation