Fix Up or Buy New: What's Your Best Housing Option?

This is a question with no one-size-fits-all answer, although most families can make the decision with a bit less drama than is normal in a popular TV series that profiles families debating whether to make over or sell their homes.

The most important issue is location. Is staying in your current neighborhood important to you, and, if so, does the kind of home you want exist in that neighborhood? If not, can you legally create that ideal home on your budget?

The second major question is budget: Is it more economical to renovate your current house or buy another one? The answer to this question will depend upon your home, your budget and your needs. In cities where homes are less expensive, it is often cheaper to buy than to build. In cities and neighborhoods that are in high demand, it may be cheaper to build an addition or renovate outdated spaces.

“Renovation can be very stressful, but so can moving,” so make a list of everything you want in a home and circle the wishes that renovation can fulfill. If you’ve got most of the items circled by the end, move on to the financial considerations. If you don’t, you probably need a different house. Your next step should be to consult with an architect to get a rough idea of whether your current house can become what you want, and at what cost.

“Is the house a good house? Are the bones good bones? Is it worth investing in the house?” are all questions an architect can help you answer, he says. “If it’s a very extensive renovation, the house should be in a great location that you can’t duplicate."

A good Architect draws up a quick sketch of proposed renovations then gathers ballpark estimates from contractors to help the homeowners decide whether remodeling is the best route. In some cases, homeowners may end up asking the Architect to look at potential new homes to see if they can be customized for the family’s needs, but then they decide that renovating another house is a better option.

Here are 10 questions to ask yourself when deciding whether to renovate your existing house or find a new home.

•  Can you renovate within the current footprint? Renovating within the home's existing footprint generally costs 50 percent less, which handles renovations for homeowners who are selling their homes. Be careful about garage conversions because they are considered an improvement in some neighborhoods but a detriment in others, he warns. And, there are times an addition is cheaper than modifying existing space, since existing space contains old problems that need to be corrected.

• Do you want to live through a renovation? Renovations cause dust, noise and disruption for weeks or even months, and they always take longer than the initial contractor’s estimate. If you’re redoing your kitchen, for example, you may be without a sink or stove for several months.

• Can you legally do the renovations you want? Every municipality has building rules, including ones regulating how much of the lot you can cover, whether you can add a second story and how close structures can be to the property line. Permits are required for major renovations, and renovations also can trigger a requirement that existing elements, like outdated electrical panels, be brought up to current building standards.

• Does the renovation make sense for your home’s value? Putting a $100,000 kitchen into a $150,000 home never makes sense, but updating a 1970s kitchen with new cabinets and countertops probably does. Never make renovations that are disproportionate to the value of your home.

• How does your home compare with others in your neighborhood? If an addition will make your home much larger than others in the neighborhood, it may add less value.

• Is your home structurally up to the renovation you want? Not all houses can support a second story, for example. Or, if you want to move walls, you may find the project also will require new support beams or concrete footers. Be wary of doing major renovations in a house with foundation or drainage problems, Wilson advises.

• Will renovating one section of your home bring to light other sections that need work? A bathroom renovation, for example, could reveal old plumbing that needs to be replaced. Once a building inspector comes into your home, he may demand you bring other items up to current codes.

• How long do you plan to live in the house? If you’re in a two-bedroom house and plan to have three children, consider whether even the expanded house will be a good fit in the long run. If you’ve going to do a big renovation, you may want to be there for at least seven to 10 years.

• Will changing houses raise your property taxes? In some states, such as California, the tax rate is set when you buy the house and increases are limited as long as you live in it. This means changing homes could equal a significantly larger property tax bill. An addition may also raise your property taxes.
• What will your decision do to your mortgage? Someone whose mortgage rate is high might do better financially if they sell their old house and buy a new one at today’s rates of about 4.1 percent for a 30-year mortgage. Or, maybe you can get the same result by refinancing and taking out cash for renovations. If you’re 20 years into a 30-year mortgage, you may not want to start another 30-year mortgage – although you can buy a new home with a 10-year mortgage if you can afford the payments.