When you need more room, should you add an addition or just sell the home and buy a larger home. (Based on a question I received today.)
Here’s my take on the question. There is no right answer. It depends on your goals, your home, your finances, you occupation and even the strength of your marriage.
Changing the Floor Plan
I would have to see a home, of course, to see how an addition would fit into the home and the neighborhood.
Redoing the kitchen and baths is one thing but adding an addition is quite another.
I’ve seen a lot of bad additions that make the home difficult to sell.
Sometimes the front doesn’t fit the neighborhood anymore.
Make sure the “flow” of the home will work after the addition. Many homes have a funky floor plan after an addition and those homes don’t appreciate as well as the rest of the neighborhood anymore.
Fitting in with the neighborhood
In addition, if your home ends up being the largest home in the neighborhood, it won’t normally appreciate as well as the rest of the neighborhood.
Be sure that whoever designs the addition has a great track record.
Make sure you have a good handle on the costs. Costs tend to run significantly more than originally estimated.
Putting your lives on hold
A major remodel is a huge disruption to the lives of everyone in the home. Many a client has total me that their marriage barely survived a remodeling project so this time around they were just going to buy what they wanted in a home.
Additions can work great
If you really love the neighborhood and home, and the costs pencil out, an addition can really make sense. To work well, however, you and your wife should consider remodeling your home a fun project you want to do together… because you will have to make a ton of decisions, large and small, together.
Do you carry a hammer?
If you are in construction, interior design, architecture or other housing related industry, that would also make me lean toward doing the addition. Being in the industry, you will know what works, who to trust (contractors, designers, etc.) and perhaps you will be able to do some of the work yourself to keep costs down.
Why to sell and buy
Personally, I would never do a major addition to my home unless I couldn’t afford to move.
When you buy, you know exactly what you are getting and the costs involved.
Moving is a lot quicker with a lot less disruption to your family.
You may also be able to move into a location you prefer or one with more appreciation potential.
And there is less potential for conflict with your significant other which, according to my clients, can be a big problem when adding an addition.
Moving up in a down market
In some areas the more expensive homes have come down in price more than the average home. In that case, you are better off moving up now.
The big downside to moving is the cost. On the selling side you have marketing costs of perhaps 6% plus title, escrow and other fees of perhaps 1% – 2%. And then when you buy you’ll have costs involved in your new loan plus title, escrow and other fees. Your total transaction costs in buying and selling could total as high as 8% to 9%. That’s a lot of money but that’s the cost of doing business, so to speak.
That’s a cost of moving up the “property ladder.”
Moving up the property ladder is a tried and true way of building wealth and living well.