Is it Better to Sell and Buy, or Stay and Renovate?

Posted by Jim DeBellis on June 13th, 2011

Contractors and interior designers are reporting that more people are upgrading their present homes and staying in them longer. Many homeowners find it a better financial choice to remodel and renovate rather than trying to sell in this market and trade up to a new home that will lose value. The choice is not an easy one, and there are some factors to consider before deciding which route is best for you.

The first thing to look at, of course, is the value of your home compared to your mortgage balance – and compared to what you paid for it initially. You may not be underwater, but do you really want to give up your original down payment and all the years of payments you have invested? You may be able to recoup any losses by finding the right deal on the right home and “transfer” the hibernating wealth you are waiting to get back when the market recovers.

Some improvements tend to add more value to a home than they cost. Updated kitchens and bathrooms, or adding an additional bathroom or bedroom, are usually good investments. A finished basement, a pool, and a new roof or driveway may not add as much value as they cost.  In any case, you might want to plan on staying for several more years if you make major upgrades.

I’ve also heard from a lot of investors that many municipalities are getting very stringent and costly on new codes. Many things that you were once allowed to do yourself may now require expensive permits and licensed electricians, plumbers, or contractors.  Whenever you are going to do something major, find out before you start what the new city codes are.  If you are adding a room, you may be required to upgrade the entire electrical system to higher amperage, and you may need the newer and safer electrical breakers installed – which can be surprisingly and prohibitively expensive.

It’s best to stick to a modest budget, and remember too that banks will not be excited to give you a home equity loan in a market where houses are losing equity every day. Use cash for your improvements if possible, stay within your means, get by with less that you might like, and stay put for a while. Examine all of your options before you pass through the hurricane of the housing market.