Making the decision to invest in renovations or upgrade to a new home isn’t always as easy as it seems. Families grow, a new job requires a remote office, aging parents move in or an old neighbourhood doesn’t check all the desirable boxes anymore. We all have different situations and circumstances, so there are plenty of reasons why you might consider starting the conversation about buying a new home vs. renovating your current home. Often, the decision comes down to finances, but there is much more to consider.
Important Things To Note
If you’ve started to discuss your future in your current home, do some research so you’re prepared to compare your options strategically and make the best decision for your long-term needs. It’s never as simple as the television shows make it seem, so don’t be caught off guard and left unprepared. Here are some top things to consider:
Do You Want To Stay In Your Current Neighbourhood?
If the answer to this question is yes, then your next step will be checking to see if there are homes for sale in your area that would meet your needs and work within your budget. Compare this to what it would cost you to renovate your current home and this should give you a good idea of how to move forward if your neighbourhood is very important to you.
What’s Your Budget / Financing Options?
The dreaded question of “what’s your budget?” applies to both options of renovating and buying. Before you make any big decisions, think about what your budget would look like for a new home and compare it to how much your dream renovations would set you back. If the homes in your area are affordable, it may be a good decision to move. If your neighbourhood has become a lot more popular in recent years and is now very sought after, you may be better off financially staying where you are, even factoring in the cost of extensive renovations.
When thinking about renovating, it’s very important to take a close look at what renovations you’d have to complete in your current home to make it the place you really want. Take some time to plan out a budget to cover (as accurately as you can) all the costs associated with your dream renovation project to make sure it’s actually something you can afford.
Unexpected Costs Of Renovating Or Moving
Both renovating and moving tend to harbour a lot of unexpected costs that you may overlook if you’re not careful. Selling your home and buying a new one isn’t as simple as making a profit and then taking that and dropping it on a new house. The current housing market has made it potentially difficult to purchase a home, with many properties selling for tens of thousands of dollars over asking and potential buyers waiving all conditions just to guarantee the sale. When choosing between renovation or moving, you’ll have to decide if you want to battle it out in the current housing market or in the hardware store against the ever-rising cost of materials, supplies and labour.
If you’re considering moving, you’ll want to make note of some costs that are unavoidable and absolutely necessary as well as some that may be a little less rigid. Agent commissions are required and will cost you 5% of the sell price. Necessary legal fees to complete paperwork and help seal the deal will set you back $500-$1,000 typically. Land transfer taxes are dependent on the cost of your new home, and tax rates can range from 0.5% to 2.5% (but you’ll likely find yourself with a rate of 1%-1.5% if you’re purchasing a home between $55,000-$400,000).
Moving fees, while more flexible, are also something to consider. Most companies will charge by the hour, and the average local move in Ontario will cost you $90-$120/hour. If your move falls around the start or end of the month, you can expect to pay more towards the higher end of that estimate due to demand. Moving is deceivingly time consuming, so be sure to factor in the distance between your two locations as every trip (if multiple are require) will take time. Most moving companies will also charge an extra hour just to come to your location and then go back to theirs afterwards. If you’re in need of more detailed costs, call around to speak with some moving companies to give them a better idea of what kind of items you need them to move and where you’re going so they can provide you with a more accurate quote. If you choose to rally together a group of friends to help and save on labour costs, you’ll still have to consider the cost to rent a larger truck as well as any funds for gas, so don’t overlook that.
When it comes to renovations, surprise costs are almost a given. Throughout the COVID-19 pandemic, the cost of materials (lumber specifically) has skyrocketed, making seemingly simple renovations, like putting in or redoing a deck, putting up a fence or framing in new walls, a lot more expensive than many people realize. Choosing to DIY certain projects helps you avoid labour costs, but it won’t help you avoid the rising cost of materials amid the pandemic. It’s wise to estimate what you’ll need in advance to determine if the project is feasible from a financial standpoint.
Some specific industries have also seen backlogs in terms of installation and accessing supplies/materials to complete jobs as a result of the pandemic. If you’re wanting a pool as part of your must-have list and you’re planning to have one installed, it would be wise to call around and ask for available options in your local area as many pool installation companies now have waiting lists of 2+ years.
Do your due diligence in the planning phase so you can avoid any disappointments or nasty roadblocks that could carry a hefty price tag. Be sure to factor all fixed costs into your budget and allot for any other variable costs that could change based on pandemic restrictions, materials, labour and time. Consider setting aside a contingency fund to cover extra expenses with either option so you’re prepared for whatever comes your way as a result of your decision.
Life Goals
Are you in the process of saving for your children’s education? Are you focused on saving for retirement? Do you plan to do a lot of travelling? Want to start a small business? All of these hypothetical situations could change the way you approach your options, so be honest with yourself about what you want in life as you move forward and your answers should make your decision a lot easier.
Must Haves For A New Space
Before making any decisions, make a list of must-haves for your space. Whether these are used as a checklist for a new home or achieved through renovating your current home, they’ll help you better understand what you need from your space to function. This is also an important step in managing expectations and looking at things from a realistic point of view. Are two extra bathrooms a necessity for your family or just an unachievable expectation? Understanding what you want from your space and figuring out how that affects your budget/options will put the whole experience into perspective for you.
Should I Renovate Or Buy A New Home?
Renovating your current home is about revising the space you already have and making it feel more spacious and functional for your family and your lifestyle. Choosing to make a big move is about upgrading your living space and relocating to find exactly what you need. In the current market, things are a lot more complex than they were in the past. With house prices and costs for materials/labour always rising, neither option is perfect and your decision should take into account the current pandemic limitations and having a realistic look at the current housing market to see where you fit in best.
Pros Of Renovating
Renovations can help you see your home in a new light. They give you the clean slate you crave without having to invest in a new home entirely. You can choose to focus specifically on the rooms that need change and work toward creating a home that functions perfectly, in every nook and cranny. You can customize, upgrade, DIY or invest however you like and feel free to skip over the areas that are perfectly fine as they are. A well thought-out renovation can challenge your entire perspective and drastically change how you experience the rooms in your home.
Pros Of Buying A New Home
When you’re not overly attached to your home or neighbourhood, making the decision to move tends to be a bit easier. Buying a new home will give you a chance to start fresh and move forward with a checklist of your most desired features (within reason and within budget, of course). Sometimes the changes you desire in your current home just aren’t possible due to your budget, zoning bylaws or restrictive physical attributes of the space.
Cons Of Renovating
It’s no surprise that renovations are never a walk in the park, and COVID-19 has amplified this by affecting supply chains, skyrocketing the price of materials and decimating timelines. Managing contractors, spearheading DIY projects, sourcing materials and juggling ever-changing timelines isn’t exactly ideal, let alone during a pandemic. Consider the fact that you may not be able to shop in person for certain items and you could be required to pad your timeline significantly to allot for supply chain delays and interruptions. Renovation projects can add up fast when you’re not working on a strict budget, especially as the price of materials like lumber continues to soar, so what was once an affordable solution can quickly become an expensive nightmare if you aren’t careful to manage your time, money and expectations.
Cons of Buying A New Home
As tempting as it is to pack up your things and move on up to a new home, there are a lot of cons associated with moving you may not have considered. Today’s housing market is reminiscent of the wild west. Buyers are walking in with cash, offering tens of thousands of dollars over asking and not requiring any conditions. The market is a seller’s dream and a buyer’s nightmare, so you’ll need to be prepared to enter this arena as a seller and also battle it out as a buyer. You’ll likely encounter a lot of disappointment before you’re able to find the home of your dreams and actually scoop it up. Understanding what you’re walking into as a buyer is an important part of the process because after you come down from the high of selling your home successfully and over asking, you’ll then need to jump right back in and find one to buy. Keep in mind that any conditions in today’s market, like needing to sell your current home first, could be a deal breaker for some sellers, so be prepared to manage your expectations.
It’s also important to remember that what you sell your home for is never what you walk away with. Be sure to factor in real estate agent fees at 5% of the selling price, early mortgage cancellation penalties (which can set you back 3 months’ worth of interest and also include an administration fee of around $1000), lawyer expenses that typically range from $500-$1000, and land transfer taxes which will typically leave you with a 1%-1.5% interest cost. Adding these up, you could be looking at a five-digit figure just to wrap up the deal, and that’s not including the expensive cost of movers. You’ll also have to consider the time it takes to find homes you like, attend open houses and potentially duke it out in a bidding war to secure the one you want. The added stress of buying a new home in this market may be enough to sway some people away from this option and instead look to invest in the home they already have.
Conclusion
Regardless of which option you choose, be prepared to embrace change in all its glory. There is no right or wrong answer when deciding whether to renovate your current home or to buy a new one because everyone’s needs are different. Our lives are constantly shifting and changing; new babies are born, and college kids move out. Jobs change and communities evolve. At the end of the day, we need to be comfortable stepping outside of our comfort zones to consider how we plan to grow and thrive in the future. Give yourself a chance to see all your options so you can make the right choice for you.
If you’re looking for some insight into the home buying process, want to learn more about how to refinance your mortgage or just need to determine if you’re ready to move forward with change, our team can help!