Renovate or Move?

There are many reasons to renovate and there are many reasons to move. In general, the goal for most people is to upgrade to a better residence, so that later on you can sell it and make some money. In times of a down market, financial experts tell us to upgrade into a different house when prices are low, but it appears that advice is not always heeded.

When the market looks bleak, potential sellers look at all the costs that are involved - agents costs, marketing and legal fees and the big one- taking a loss on the property. So rather than dive in and sell, or rent it out and buy a new primary residence, more and more people are thinking along the lines of:  'Well this place is not so bad, we can renovate and add that bathroom and bedroom and in the future it will be worth more.'



The most popular renovation is going up, either converting an attic or adding a new floor. Patrick Houston from Attic & Roof Conversions believes you can double your money by going up particularly if you add 2 bedrooms.  ''If you look at a block of flats with two- and three-bedders, you normally find there is a $100,000 to $150,000 difference,'' he says.

''Say we add two bedrooms for around $110,000, you are making rooms for roughly $50,000 each. [It is cheaper as you add two rooms, because you don't have to pay establishment costs again.]''

Typically, if you are undergoing a radical renovation such as adding a floor onto your house, the goal usually is not to sell it immediately, but to make room for more people, either kids, parents, other family members, or even to rent out (depending on the layout of the house).

If you are considering renovating, get an estimate of what your home will be worth afterwards. The biggest problem facing renovators is that the money injected into the the house may not equal a higher selling price. The formula you can use to check the potential value is:

Current home value + extension/home improvements costs = improved home value as a minimum

When you undertake the renovation make sure it is of the highest quality. A 'quick and dirty' job will not increase the value at all, nor attract any buyers, but if the renovation is treated like it is an integral part of the home it will be very attractive.

Having said that, if you are not planning on moving anytime soon and you are happy with the location, style, proximity to schools and work plus you love the neighbours,  it maybe still be worth it. Think about how much enjoyment you will get from the new house, but only as long as you are planning on staying there long enough to fully depreciate the renovation or if you rent it out, that you will either produce positive cash flow or at the very least neutral.

So would you 1) Sell and move 2) Renovate your home, or 3) Use it as an investment property and buy somewhere else?