Renovate your home or buy a new one? Here’s what the experts suggest

Homeowners looking to change their living space face the dilemma of buying a home versus renovating. Sometimes, renovating may make more sense, such as if you love your location and just want the extra space. Other times, however, buying a new home is a more viable route.

Yet in the current real estate market, where prices and interest rate Relatively high, the decision can be more complicated. Here’s what real estate experts recommend.

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Good option when renovating a home

Some homeowners find that renovating or remodeling their existing home gives them what they’re looking for, such as more space or a more modern design.

you can Financial reforms through options like Home equity loan or Home Equity Lines of Credit (HELOCs). When factoring in the cost of this loan compared to transferring and applying for a mortgage, you may find it better to keep it.

More specifically, renovating may be better than buying a new home in the following situations:

When the local real estate market is very expensive

If you live in an area where real estate prices have risen significantly and you want to stay in the same neighborhood, upgrading your current home may be more affordable. Or, if you are making a move to a new area, you may likewise find the costs too high.

“One of the main reasons to renovate is because new homes are too big and expensive in the area you want to live,” says Bruce Elion, a licensed attorney and real estate salesperson with RE/MAX Town & Country.

For example, when buying land or a tear-down property 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,” Allion adds.

Plus, renovating can help you avoid bidding wars and deal with the complexities of a hot market.

“Renovating can be a smart move in an increasingly competitive market like South Florida, where finding desirable properties without high competition among buyers is often a challenge,” said Carolina Gerdotts, executive vice president of RelatedISG Realty.

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When you can add value or comfort

Another reason to renovate instead of buying a new home is if you can Increase the value of your home and living in a way that creates more long-term gains and/or comfort.

“By upgrading your living space, you can increase the value of your home, making it a smart investment for the future. This can be especially important if you plan to sell your home in the future, as it can help you get a higher sale price. ,” says Addie Kriegstein, a licensed real estate agent at Compass Real Estate.

You may find yourself in situations where you have an emotional connection to your home or neighborhood, Gardts says. So, instead of moving and losing that connection, renovating can enable you to stay in and enjoy your home.

“For example, I have encountered sellers who find it difficult to sell their property because their children have grown up there, even when the house no longer suits their needs. For this example, renovations like updating the kitchen can help them stay. home,” adds Gerdts.

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When moving costs are too high

Many times, the decision between renovating or moving comes down to cost. The cost of financing renovations with a home equity loan, for example, can be lower than taking out a whole new mortgage — especially if you’ve had a low-interest mortgage for the last few years.

Even if home equity loan rates are high, smaller loan sizes can make renovating more economical overall.

“With mortgage prices nearly doubling for many homeowners these days, it makes sense to renovate your current home so you can secure a lower mortgage rate. Using savings or a small home equity loan will make the overall carrying cost much more reasonable.” Melissa Cohn, Regional VP of William Ravis Mortgage said

Also, going through the renovation process can be more affordable, as you can make changes according to your budget. Sellers may charge a premium for the convenience of having renovations already completed.

Likewise, you may find that making a few upgrades costs less than going through the entire real estate transaction process.

“Renovating can often be more cost-effective than buying a new home because of selling and buying costs like real estate agent fees, closing costs and moving costs, all of which can add up significantly,” says Gerdts.

Better options when purchasing a new home

In some cases, buying a new home and taking out a mortgage to do so makes more sense than renovating, such as in the following situations:

When renovation costs are high

Sometimes, renovation costs add up to the point where you’re better off buying, especially when Home equity rates vs Bail rate.

As of July 10, 2023, the average interest rate on a 15-year home equity loan was 8.39%, while the average interest rate on a 15-year fixed-rate mortgage was 6.60%. Bankrate.

Also, the actual cost of construction in your area can tilt the scales in favor of buying.

“You may find yourself in a situation where renovating is the same price as buying new and, possibly, renovating more than buying new. It could be a situation where the home is too far gone or where new homes are priced competitively,” said Ailion.

Renovating can be especially expensive if your home needs a lot of work.

“If your current home has significant structural problems or needs major repairs, it may be more cost-effective to purchase a new property. Renovating a home with major structural problems can be expensive and time-consuming, and there is no guarantee that repairs will completely solve the problem, ” says Kriegstein.

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When you want convenience

Even if the purchase costs more than the renovation, your time may be worth more to you. It may be worth it if you can buy a new home faster and with fewer headaches than going through a full renovation.

“It may be more practical to buy to avoid costly and time-consuming renovations that may partially solve some problems,” says Gerdotts. “Construction to add significant space can be expensive and sometimes not even possible due to local zoning restrictions or limitations.”

The more complex the renovation, the more sensible it may be to focus on buying.

For example, “if the home’s layout is fundamentally flawed and can’t be easily changed through renovations, buying a new home may be the best option,” Kriegstein says.

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If the location is good

If you want to change your location, buying a new home can be a smart choice.

“I’ve had clients who loved their neighborhood when they bought their home but eventually realized it no longer met their needs due to a job change or wanting something different. Remodeling won’t change the location; find a new home in a suitable neighborhood. There may be a way to go in this situation,” says Gerdts.

Relocating can also be a good choice financially, as you may not get a great return on renovations in some areas.

“It’s all about location,” Ailion says. “There are places where crime is too high, prices are too low, schools are failing or governments are poorly run that you shouldn’t build or renovate.”

Bottom line

Overall, the choice between renovating your home or buying a new one depends on a mix of financial and personal considerations. Sometimes, however, it makes sense to sit on the sidelines or make small changes for now.

“If doing small to moderate renovations without borrowing a significant amount of money on a much more expensive HELOC allows you to stay in your home long enough to ride out this high-rate environment, then you should do it, because as long as values ​​continue to rise,” Cohn says. . “When you go to sell your current home, you can recoup the money you spent on renovations.”

However, things don’t always work that way.

“If the renovations don’t increase the value, you might want to consider holding onto your home until mortgage rates come back up in the next year or two,” Cohn adds.

It’s also possible that some homeowners find both renovating and buying viable options.

“For example, a homeowner may choose to renovate to increase resale value before putting it on the market and use the proceeds from the sale to fund the purchase of another home,” says Gerdotts. “However, if financial constraints exist or long-term plans remain unknown, retention may be the best option.”