The decision to buy new or remodel depends on a number of
factors, some financial and some not — and ultimately, only you can decide what
answer makes the most sense for you. That said, I'm leaning towards the new
purchase.
Let's look at some of the issues to consider:
1. Cost per square foot: Although figuring the cost per square
foot is an imperfect exercise at best, since it doesn't account for variations
in floor plans and materials, it's worth doing the math (price divided by
square footage). The bigger house is less expensive at $143.47 per square foot,
versus $147.36 per square foot for the smaller one (after it's been expanded to
1,900 square feet).
What's your home worth?
2. Transaction and moving costs: You need to compare the
costs of refinancing — and perhaps renting a place to stay while the remodeling
takes place — versus the costs of buying new and moving. An online calculator
can help you compare these expenses. An interesting one that not only allows
you to compare costs but also asks questions to help you sort out your
"gut feelings" towards remodeling versus moving can be found at
RemodelOrMove.com.
Keep in mind that costs for loans and moving tend to fall
into line with budget projections, while remodeling costs often exceed them,
swelled by change orders, delays in delivering materials and unexpected problems
that crop up during construction, like leaky pipes that are discovered when the
drywall is removed.
3. Age and obsolescence: Although you don't say how old each
house is, you need to take their relative ages into account, because that can
make a difference in the eyes of future buyers. How much depends on the actual
age of each house. For instance, if the larger house is 15 years old, and your
current house is 20 years old, there may not be much of a qualitative
difference between the two in most buyers' eyes. But if you only plan to put an
addition on your home, it won't be competitive with a house that's five years
old or less, and won't appreciate as quickly. A house that's new will have an
updated floor plan, a current kitchen and bath, and materials, fixtures and
finishes that have yet to see much wear and tear — well worth the $50 extra
you'll pay per month on the loan.
4. The economy: You may get bargain rates from remodelers
trying to keep their businesses in the black during a tough economy (though $33
a square foot for a 750-square-foot addition seems awfully low). But as home
prices continue to fall, many people are seeing their home-equity lines of
credit shrink or get cut off — so don't expect them to be reliable sources of
money for a renovation. What's more, most of the measures the government is
currently considering to stimulate housing, including mortgage rate buy-downs
and tax credits, are targeted towards people who are purchasing homes, not
those who are refinancing or remodeling.
The bottom line: If you remodel your house instead of
moving, you'll be able to get exactly what you want and will have total control
over the final result. But given the costs, uncertainties and hassles of
remodeling — and the fact that you have a buyer in hand for your current home —
if I were you, I'd trade up.
By June Fletcher, The Wall Street Journal
Until next time,
Ebbie
