Your starter home is no longer large enough for your needs. Perhaps your family has grown, or maybe you need space for a home office or gym. Or, perhaps your older home needs a face-lift and modernization. Pros and cons exist whether you choose to renovate your old home or buy a new one.
A key factor to consider is the saleability of your home and the size of your mortgage. If your home will sell easily at a price that leaves you with a down payment after sales costs, then selling and moving might make sense. If not, consider staying put and renovating. Likewise, consider whether a house like the one you want is likely to be available. Spend time viewing classifieds or online listings and attending open houses. If your dream home is unusual in your market, you may find remodeling a better option.
Return on Investment
Another factor is whether a renovation will increase the resale value by at least as much as it costs. Although specific situations differ, some general guidelines apply. If your house is the same size as others in the neighborhood and you add space, you are less likely to recoup the cost of the addition. If your home is smaller, you are more likely to increase the value of your home by more than the investment. Another way to determine potential return on investment is to obtain an appraisal on your home (or research its value online), then compare that with the value of homes that have the improvements you're considering. Obtain estimates on the cost of improvements. If the values rise by more than the cost, you are likely to recoup your investment at sales time. Charts also exist that estimate the cost of various remodeling projects, as well as the percentage of costs recouped.
Another part of the financial equation is the cost of moving vs. the cost of remodeling. What would a new mortgage cost, including fees? How much sales commission would be paid to a real estate agent? How much would movers charge? Compare all these with the costs of remodeling, including the costs of eating out or staying in a hotel while the work is completed.
Quality of Life
The decision of whether to remodel or relocate also includes intangibles. For example, you may love your neighborhood for reasons that are hard to duplicate elsewhere, such as nearby schools or abundance of green space. (ref 2) Or you may adore unique aspects of your current home such as an ornate fireplace or winding staircase. (ref 5) In these cases, consider whether remodeling makes sense as an investment in quality of life even if it doesn't make sense financially.
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