Renovate or Buy a New Home?

You are desperate for more living space and now face the big decision – renovate your current home, or buy another one? This decision should be made in a two-step process.

Both renovating and buying have pros and cons, and both are stressful, so make the bigger decision first – decide what you want and where you want to live. Then decide whether to renovate or buy. If you like your current neighbourhood, renovation may make sense, provided that the renovated value of your home is in line with the values of other homes in your area.

Three key factors are also important to consider in making this decision – financial costs, non-financial costs, and resale value.

From the financial perspective, one simple rule is to determine what it will cost to move. This cost generally equates to about 10 per cent of the current value of your home and includes real estate commissions, land transfer tax, and moving and legal costs. Compare this cost to the cost of renovating, and if renovating is less, then take the less expensive route.

However, homes are much more than dollars and cents, so you should also think about the non-financial costs of relocating either yourself or your family – including the stress and upheaval involved in a potential move and the time it will take you to find services and professionals in your new community. If you do have children, consider how a new school, with new friendships will affect the kids.

Finally, your home is one of the largest investments you will ever make so its resale value is always a major consideration.

If you are renovating, spend your money wisely – some renovations add more value than others to the final selling price. A kitchen or bathroom renovation will potentially return 100 per cent of your costs. A basement, family room or deck is another good investment, while landscaping upgrades only return about a quarter of your costs. Putting in a pool depends on your area so talk to your Realtor first.

While mortgage rates are very attractive right now, financial institutions are more demanding. Today more than ever, it is imperative to manage existing debt and to try to avoid taking on any extra debt in an uncertain job market. If you are buying, check that you qualify for the size of mortgage you require. These days, financial institutions are looking harder at a home’s appraised value.

If you are selling your home, look at its current appraised value and make sure you can get your equity out of it – if not, it may not pay to either move or renovate.