Pros and Cons of Remodeling Vs. Moving

Comerica Bank

Man kneeling in a house work site

Homeowners need to consider personal factors such as how attached they are to the property and how long they could see themselves staying should they choose to.

Almost all homeowners eventually face the question, "Does my property still satisfy my lifestyle?" If the answer is "no" – because your family is growing, the kids are moving out or you're just ready for something new – you need to ask a crucial follow-up: "Should I remodel my home, or should I move?"

Sometimes the answer is easy. If location is the problem, no amount of remodeling will suffice. However, the decision-making process is usually more involved. Homeowners need to consider personal factors such as how attached they are to the property and how long they could see themselves staying should they choose to remodel.

Practicality also weighs into this decision. What is the extent of the remodeling, the cost for those renovations, the amount of time it would take? How might it affect long-term property value, and do you have the capital on hand for remodeling?

As you deliberate, it helps to have all the information you need to make the right choice for your circumstances. That's why we've enumerated some pros and cons to help you make your decision.

Remodeling pros

Remodeling is ideal if you're happy with the school district, local amenities, property taxes and other locational factors. This means that if you're mainly interested in a kitchen with new counters and appliances, or a refurbished patio space, it's in your best interest to remodel your home rather than go through the trouble of putting it on the market and leaving the area you like. Both of these remodeling jobs in particular can yield significant returns on the value of the property.

Financially speaking, a home equity line of credit may make remodeling the more enticing option. A HELOC loan's value is determined by subtracting your existing mortgage from a percentage of your home's value. Presuming you have a healthy credit score (640 or higher) and debt-to-income ratio (the low 40s or less), a HELOC loan provides a revolving line of credit for a set period of time, usually 10 to 15 years, known as the draw period. The loan may have a fixed-rate payment option or a variable rate option. It’s important to closely assess both options, as a fixed-rate HELOC may be more consistent than a variable rate but can end up costing more in the long term since you pay for the additional convenience of an unchanging rate.

A HELOC loan for home improvement can also be applied to a more substantial remodeling effort (adding a new floor), and may also qualify you for tax deductions, according to Forbes®. Ideally, though, you would have enough equity to finance the whole project with a HELOC loan, as this will help lock in interest rates.

Remodeling cons

The most obvious con of remodeling is that it can also be disruptive since you are, in effect, living in a construction zone with workers possibly coming in and out depending on the extent of the project.

Remodeling can also be a financial liability. First, there's the possibility of an unexpected cost arising. This is not unusual, especially for larger-scale remodeling that uncovers previously unresolved issues. The other risk factor is "over-improving" your home. Real estate prices are affected by location, meaning you won't get full return on investment if your renovations are made in a neighborhood with mostly starter homes.

By comparison, remodeling a home to raise the value to match other homes in the neighborhood would likely yield higher return on investment. In other words, you don't necessarily want to put yourself in a position where you have the priciest home in the neighborhood, especially if you intend to eventually sell your house.

Moving pros

The most obvious benefit of moving over remodeling is that you don't have to deal with contractors or live in a construction zone for several months at a time. A new home is also the ideal option for a homeowner who is generally displeased with his or her location, whether it's because the school district leaves something to be desired or because they could use a change of scenery.

In some cases, selling a home with good equity may just be more financially beneficial than remodeling. Rather than borrowing against your equity, you may instead cash out by selling the property, and then use the money to move into a better home.

Another key benefit of moving is that if the home was recently constructed, it’s probably more energy efficient than an older property, which can save money on utilities. And, if the house is new or in good condition, additional spend on repairs may be minimal.

Moving cons

Ironically, the only thing more expensive and time-consuming than renovating your home is buying a new one. The costs of property are generally increasing, partly because nationwide housing inventory has been relatively low in the past year. This means it's harder and more expensive to find a home. Furthermore, because most homes sell quickly on the market today, the seller may not have very much time to make a decision when searching for a replacement home.

There's also no way around the fact that moving is expensive. Realtor fees (for buying and selling), relocation costs, renovations to make your existing property more marketable and countless other expenses add up fast. The process of buying and selling a home is also generally stressful. It demands time, money, patience, coordination and a willingness to act quickly to beat the competition, knowing well that you may end up in a house you actually like less than your old home. This doesn't factor in the emotional strain of moving, the possibility of a longer commute and other personal factors.

The bottom line

Due to generally low inventory and the fact that many American homeowners currently have equity, more people are choosing to remodel instead of move, according to MarketWatch®.

Remodeling spending as an alternative to moving is on the rise, and many of those projects, unsurprisingly, are financed with HELOC loans. Talk to a Comerica Bank lending expert today to learn more.

This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice.

This article is provided for informational purposes only. While the information contained within has been compiled from source[s] which are believed to be reliable and accurate, Comerica Bank does not guarantee its accuracy. Consequently, it should not be considered a comprehensive statement on any matter nor be relied upon as such.

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