Homeowners who want to transform their living space are faced with the dilemma between renovating and buying a house. Sometimes a renovation can make more sense, for example if you love your location and just want more space. In other cases, however, buying a new home is the more efficient route.
However, in the current real estate market, where prices andare relatively high, the decision can become even more complex. That’s what real estate experts recommend.
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When a home renovation is the better option
Some homeowners find that renovating or remodeling their existing home will give them what they are looking for, such as more space or a more modern design.
You canthrough options like or . Considering the cost of these loans compared to moving and applying for a mortgage, it might be better to stick with it.
More specifically, a renovation might be better than buying a new home in the following situations:
When the local real estate market is too expensive
If you live in an area where property prices have increased significantly and you want to stay in the same area, it may be more cost-effective to upgrade your current home. Or if you are planning a move to a new region, you may also find that the costs are too high.
“A major reason to renovate is that new homes are just too big and expensive in the area you want to live in,” says Bruce Ailion, licensed attorney and real estate salesman at RE/MAX Town & Country.
For example, if you’re buying land or a demolition lot to build a new home in a popular downtown area, you may need to build a 5,000-square-foot home “to justify the price,” Ailion adds.
In addition, a renovation can help you avoid getting caught up in bidding wars and dealing with the complexities of a hot market.
“Renovation can make sense in an increasingly competitive market like South Florida, where it’s often difficult to find desirable properties without competitive buyers,” said Carolina Gerdts, executive vice president at RelatedISG Realty.
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If you can add value or convenience
Another reason to renovate rather than buy a new home is when you canand quality of life in a way that creates more profit and/or comfort in the long term.
“By upgrading your living space, you can add value to your home and make it a wise investment for the future. This can be especially important if you plan to sell your home in the future, as it can help you generate more sales,” says Adie Kriegstein, licensed real estate salesman at Compass Real Estate.
You might also find yourself in a situation where there is an emotional connection to your home or neighborhood, says Gerdts. So instead of moving and losing that connection, a renovation could allow you to stay and enjoy your home more.
“For example, I have seen sellers find it difficult to sell their property because their children grew up there, even if the house no longer suits their needs. In this example, renovations like redoing the kitchen can help persuade them to stay in the house,” adds Gerdts.
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When the moving costs are too high
When deciding between renovation or relocation, it is often the cost that counts. It’s possible that the cost of financing renovations with a home equity loan, for example, may be less than taking out a new mortgage from scratch – especially if you’ve had a low-interest mortgage in the last few years.
Even if home equity interest rates are higher, the smaller loan size could make the overall renovation more economical.
“With the cost of mortgages nearly doubling for many homeowners today, it makes sense to renovate your current home so you can keep the low-rate mortgage. Using savings or a smaller home equity loan makes the overall cost much more reasonable,” says Melissa Cohn, regional vice president of William Raveis Mortgage.
Also, it might be cheaper to do the renovation process yourself as you can make changes according to your budget. Sellers may charge a premium for the convenience of having renovations already completed.
Likewise, you might find that making some upgrades costs less than going through the entire property transaction process.
“A renovation can often be less expensive than buying a new home because selling and buying costs, such as real estate agent fees, closing costs, and moving costs, can add up significantly,” says Gerdts.
When buying a new home is the better option
In some cases, buying a new home and getting a mortgage makes more sense than a renovation, such as in the following situations:
When the cleanup costs are too high
Sometimes the renovation costs add up enough to make it worth buying, especially when you consider these costsagainst .
According to Bankrate, the average rate on a 15-year home equity loan as of July 10, 2023 is 8.39%, compared to an average rate on a 15-year fixed-rate mortgage of 6.60%.
In addition, the actual construction costs in your area could be the decisive factor for the purchase.
“One can come across situations where the price of buying new is about the same as renovating, and possibly even more for renovating than buying a new home. This could be a situation where the house is too far away or the new houses are competitively priced,” says Ailion.
A renovation can be particularly expensive if your home requires a lot of work.
“If your current home has significant structural problems or requires extensive repairs, it may be less expensive to buy a new property. Renovating a home with serious structural problems can be expensive and time-consuming, and there’s no guarantee that the repairs will completely fix the problem,” Kriegstein says.
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If you want comfort
Even if the cost of buying is higher than renovating, your time can be more valuable to you. If you can buy a new home faster and with fewer headaches than a total renovation, it might be worth it.
“A purchase can be more practical to avoid costs and time-consuming renovations that may only partially solve some problems,” says Gerdts. “Building to create significantly more space can also be expensive and sometimes not even feasible due to local zoning restrictions or restrictions.”
The more complex the renovations are, the more sensible it could be to concentrate on the purchase.
“For example, if the house layout is fundamentally flawed and can’t be easily changed through renovations, then buying a new house may be a better option,” says Kriegstein.
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If the location is better
Buying a new property can also make sense when changing location.
“I’ve had clients who loved their neighborhood when they bought their homes but eventually realized it no longer suited their needs because they changed jobs or wanted something different. A conversion will not change the location; the search for a new home in a suitable area can be nice.” “The right way under these circumstances,” says Gerdts.
Changing location by moving may also be a better choice financially, as renovation may not pay off as well in some areas.
“Everything depends on the location,” says Ailion. “There are places where crime is too high, prices are too low, schools are failing, or government is badly run that you shouldn’t build or renovate.”
The final result
Overall, the decision between renovating your home or buying a new home comes down to a mix of financial and personal considerations. However, sometimes it makes sense to wait or make only small changes.
“If you can stay in your home long enough to survive this high-priced environment with small-to-moderate renovations without having to borrow a significant amount of money for a much more expensive HELOC, then do it while the value is appreciating,” says cohn “If you sell your current home, you can recoup the money spent on the renovation.”
However, it doesn’t always work that way.
“If the renovations don’t add value, you might want to consider leaving your home as is until mortgage rates come down again in the next year or two,” Cohn adds.
It’s also possible that some homeowners may see both renovating and buying as viable options.
“For example, the homeowner may choose to renovate to increase resale value before putting it on the market and use the sale proceeds to finance the purchase of another home,” says Gerdts. “However, if there are financial constraints or long-term plans are unknown, staying there may be the best option.”