Should We Remodel, Or Buy A New House?

Many growing families who are finding themselves running out of room or just not happy with the current finishes their home has are now contemplating the age-old question, should we remodel our house or buy a new one?

Although prices are beginning to increase, many people are still under water, so even if they feel they need to expand or upgrade, they fear sinking more money into their investment.  On the flip side, shopping for a new home with such limited inventory on the market for sale poses a huge challenge of its own for potential move-up buyers.

Attractive homes that are priced well are almost always met with a bidding war in this current real estate market.  We have recently had several bidding wars with 25 offers on one listing and 30+ on another!  

In a perfect world, my advice would be to buy a new home while prices are still low and equity is building and KEEP your current home as a rental/investment because over the next several years you would have two properties appreciating in value.  This option is not feasible for most as the average American family cannot risk carrying two mortgages if they are left temporarily without a renter.

Are you grappling with the decision to fix up or trade up?  Start by asking yourself five key questions:

Is selling a realistic option?  Start by assessing your local housing market.  Compare three key metrics, price increases, speed with which homes are selling, and inventory of places for sale.  You want higher numbers for the first two and lower numbers for the latter.

Can you remodel your way to the house you want?  Now that the market is heading in the right direction, you're still not guaranteed to recoup your rennovation costs, but you're in a much better position to make back the money as the value increases.  You want to make sure that you can cost effectively create the house you want out of the house you have.  Meet with architects and contractors to come to a conclusion on whether or not this option works for you.  If you're planning on staying in the home long term, a large project for the home to better fit your needs may be worth it.

Is the house you want for sale?  If you decide to move, is the house you want even available?  That's a huge question in today's market. Nationwide there is a four month or less supply currently on the market.  Typically a normal amount of inventory is about six months worth.  Consult with your local Realtor, *that should be Emily Rose Newmark if you live in the Los Angeles area, specifically San Fernando Valley* ;) to check availabilty of what you are looking for.

What are the hidden costs?  It's no secret that many remodeling jobs come in over budget.  Key thing to remember is that remodeling always costs more and takes longer than you've estimated.  So once you've settled on a number, build in an extra 10-20% to cover any unexpected expenses.  One big thing to consider is, could you actually live through the remodel or would you need to find temporary housing?  You'll have to consider which one is lesser of the two evils, living through a remodel can be painful, yet displacing your family for several months could be costly and is no picnic either.

What does your gut say?  Don't force yourself into a decision that really doesn't feel right.  The housing market is still in a state of flux and you could find yourself in a very different position six months to a year from now when home prices may be higher and more homes will likely be sporting For Sale signs.  The right answer for you and your family may be just to sit tight with the rising market on your side.