Move or Remodel?
A No Nonsense Approach

Move or Remodel?

By Bankrate.com

Expensive as it is to remodel, it is tempting to think moving is the safest bet. But that can be far from true.

“In moving, there is no payback. It is a pure expense,”  Dan Fritschen, the author of Remodel or Move,” says . “You end up writing an average of $40,000 in checks, and no matter where you move, that money is gone. It doesn’t increase your net worth — it is just gone.”

People often underestimate the true costs of buying a new home. Real estate commissions, financing charges, moving costs, utility deposits and other unexpected bills pile up. Then there’s the tax shock: “A lot of places don’t necessarily reset your property tax every year for every homeowner,” Fritschen says. “When you move, it may go up dramatically. That may still be a consideration when you remodel, but generally not as much.”

Comparatively, a remodeled home could appreciate by $100,000 or even $150,000, depending on what changes the owner makes, offsetting the expense of sprucing things up. The remodel could end up being financially neutral even after borrowing a huge sum to pay for renovations. Even if renovating makes sense, ask if you are financially ready to lay out the amount of cash required to do the work. A $100,000 addition might increase the value of your home dollar for dollar, but if you can’t afford that cash upfront, you will never get the job off the ground.

One way to ensure you keep your remodeling job in touch with reality is to consult the annual list published by Remodeling magazine and the National Association of Realtors. The list evaluates how much return you can expect from a given home improvement. Some jobs, such as regular maintenance, better siding and minor bathroom renovations, for instance, return more than 80 cents in value for every dollar spent. Others, such as adding a sunroom or a pool, return less than 60 cents on the dollar, or worse. “Anything beyond what you will get back through appreciation is a true expense,” Fritschen says.

The difference is a question of land value versus structure value. “Land appreciates the most, the house not as much,” Fritschen says. So staying on your existing property and improving the home itself could mean a substantial tax savings compared with moving to a new home where the taxable value could increase.

A decision to remodel or move comes down partly to emotions and partly to finances. “One of the first things you should ask yourself is if you really like the location your house is in right now,” Fritschen says. Consider your neighborhood, the schools and whether your home is average or below cost for neighborhood.

“If you like all of those aspects, then it is likely you can remodel and keep the things you like and improve on the things you might not like so much, size, amenities, things like that,” Fritschen says.

But even if you are in love with an area and you would certainly get your money back, columnist Glink says, it might not make sense for some people to commit to a potentially life-changing remodel. “You really need to be honest with yourself,” she says. “Do you want to go through the mess and headache of a remodel? You have to realize, things will go wrong. It will cost more than you thought. It will be a nightmare. And then when it is done, it will be beautiful.”

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