To add-on or move on: which is best for you?

About this time of year, we hear from a lot of clients that are debating whether they should add on to their existing house or just buy something bigger. Maybe their family has grown and they need more beds and baths. Perhaps they just want their living room and/or kitchen to be a bit bigger. Whatever the reason, it’s a big decision and there are a lot of things to consider.

Where will the money come from?

Unlike buying an existing house, you can’t just obtain a standard mortgage to pay for this addition. You’ll need to either have the cash on hand or lots of equity in your house. If you bought your house years ago, the value of your home might have increased significantly, and you can look into doing a HELOC.

A HELOC is essentially a cash-out refinance. You’ll have a bank appraise your property’s current market value, and then you can borrow up to 80% of that value. The remaining principal on your old mortgage gets added to the amount of money you’ll borrow in cash, and you’ll have a new interest rate based on today’s rates.

You can also explore construction loans. They require anywhere from 20%-50% down depending on the lender and the product.

If you think you might have enough equity in your home, we can run comps for you to see whether you’re as equity flush as you think. We can also point you in the right direction if you want to explore HELOCs or a construction loan. Just ask for our preferred lender contacts.

How much does an addition cost?

Case Study: Us. That’s right, The Wymans’ House

Two years ago we bought an 1100 sqft home in Windsor Park, thinking we might add on and make the home of our very modest dreams. We purchased in the low $300,000s. We figured if we added enough square footage, we’d be safe on the resale side in the event we wanted to sell. We’re risk averse folks over here at The Wyman House.

This all hinged on the actual cost of the addition, which turned out to be very expensive – to the tune of $200,000!

Adding On is Expensive

The crazy thing is that we were only looking to add 450 sqft to the house. We were going to enlarge and vault our living room, add a master bedroom closet and move our utility room in from the carport.

add-on or move on
Existing plans vs. proposed 450 sqft addition

I’ve attached the plans so you can get an idea of the scale of things. We had a couple of companies bid the job. Finding a contractor is difficult because a lot of contractors will only do jobs that add over 1000sqft. Our lowest bid was around $160,000, and the highest was $200,000 from a very reputable company, AR Lucas.

Given our purchase price and the cost of the remodel we would have had an investment in our house of around $500,000. It has been a couple of years since we bought and even now the market couldn’t support that kind of resale price on a 1600 sqft home in our neighborhood. We would have been upside down on our property value. We decided not to proceed with the addition to have the flexibility to sell without taking a loss should something unforeseen happen.

Something else to keep in mind on the financial side is that your property taxes will change to reflect your newly remodeled home’s value. This can be a significant increase in your monthly PITI payment outside of the rise in mortgage costs.

Adding On Takes Time and Temporary Housing

If you think you’ll somehow be able to live in the house while it’s added-on to, we are sorry to burst your bubble: it’s not possible. It’s not just because it’ll be loud either. Your home will have open walls, and it won’t be secure for you or your belongings. Heating and cooling the house is impossible. There will be workers coming and going constantly. The utilities will need to be turned off for long stretches of time. It’s not safe, and it’s not realistic.

No matter what HGTV has told you these projects do not take one month. They take many months. A smallish addition– like the 450 sqft addition we were planning– can take around three months from groundbreaking to Certificate of Occupancy issuance a.k.a. “The Finish”, and that’s if everything goes well, including the weather and City of Austin permitting. So plan on it taking significantly longer than this.

Our lovely neighbors and clients, The Suches, have undertaken a massive and impressive addition/remodel of their home. It will be amazing when completed, but they started in Aug. 2016, and as of Feb. 2018 it still isn’t done! This extended timeline isn’t typical, but it isn’t out of the question either.

Such’s before.
Such’s in progress.

 

While the construction is underway, you’ll need to rent storage facilities for your things and find a short-term rental for your family. Short-term rentals are pricey in Austin, and if you have special circumstances like multiple big dogs, it can be hard to find anything at all. These are both hidden expenses to your renovation costs.

Love Your Neighborhood or Open to Change?

This is the real tricky part of the “Add-On or Move On?” question. If you love your neighborhood, but the values have significantly risen since you bought, can you afford to buy a bigger house in your neighborhood? Will you have to move further away from Downtown to get something bigger? Often the answer is “yes” in today’s market. This is the most common cause of people pursuing adding-on instead of moving on.

If your home has appreciated $250,000 since you bought it, and your remodel will cost $200,000, then you’re in luck. You can get a HELOC for the full 80% of the appraised value and fully finance your remodel. You’ll still need to find storage for your furniture and temporary housing for the duration of the process. Your mortgage will likely increase by around $1400/month (see graphic below) in Principle, Interest, and Taxes. But if you can handle all of this you get to stay in your neighborhood and live in your newly remodeled dream home! Congrats!

Maybe your house hasn’t appreciated that much, but you have saved enough to use your home’s equity and make up the difference with cash. Awesome! You get to stay in your neighborhood and have the house of your dreams.

If you don’t think you can afford this remodel with equity and/or cash, but still need a bigger home not all hope is lost! You can still explore buying a new house. For a conventional mortgage, you only have to put 5% down, and there will be little to no remodel phase depending on what you choose to take on. Remodeling cosmetic features (like floors, tile, backsplashes and even windows) is much cheaper and faster than altering framework and layout.

If you think you’re ready to explore a change or want to know more about the possibility of adding on, please don’t hesitate to reach out to Team Wyman. We’d love to help you find out what works best for you.

Nathan Wyman, Realtor® 512.947.0127 nathanwymanrealtor@gmail.com

Brandi Wyman, Realtor®  512.638.1739 brandiwymanrealtor@gmail.com

 

Don’t let perfect get in the way of a good house

Image by: Phil Roeder

I was reminded of a great quote while raking and bagging fallen leaves in our yard recently.

“Don’t let the perfect be the enemy of the good. “ –Voltaire

I meditated on these words as I watched half of my collected leaves fall back onto the ground while trying to get them into paper bags for curbside pick up. I told myself –“There are less leaves on the ground than there were before and that’s good enough. If I spend all day trying to get every leaf out of this yard I will spend less time with my husband and my son and I really like those guys.”

Perfection is also an idea/ideal I struggle with as a parent.  Of course we all want our kids to have a happy life and feel safe and secure and well adjusted.  I am imperfect as a person and therefore I am imperfect as a parent. Coming to this realization has been game changing for me and I am a happier and healthier parent knowing that perfection is an unreasonable goal.  I have to protect the good from her enemies.

This concept is also useful in our current Austin Real Estate market. The perfect house more than likely doesn’t exist, but that’s ok! If a house checks a majority of the boxes for what you want that is pretty darn GOOD. The current Austin housing market is so competitive and moves so quickly that waiting for perfection could put you behind the curve. Compromise is necessary for success in this market and rigidity can work against both buyers and sellers.

I’m not sure how a great mind like Voltaire’s would feel about his words being used to contemplate yard maintenance, parenting and real estate transactions, but I sure am glad he put pen to paper.

If you or anyone you know would like to talk about how to navigate the real estate market in Austin Texas please get in touch with us.  We always strive for the GOOD and often achieve the GREAT!