Buy or Renovate? Tips for Deciding

 We all saw the tremendous amount of renovation that went on during the pandemic, as people hunkered down to work, play, and live with extended family in their homes.  Now that restrictions are lifting, the market is so hot that some cannot find new houses to buy.  They may consider renovation instead, although raw materials have skyrocketed and there is a shortage of labor with a backlog of jobs.  What should a person do?

The answer is, as always, it depends.  The first thing to consider is how long you plan to stay in your current home. If you plan to stay a long time, you should spend that money you saved from the vacations you didn't take last year, because you will be enjoying the fruits of your labor for some time to come.  If, on the other hand, you are thinking of retirement and relocation, your horizon is much shorter.

 Along with that calculation, you should think more about the purpose and scope of the work you would do in a renovation--is it mainly for yourselves, or would it improve the resale value of your property?  If so, what percentage of what you spend would be recaptured in a sale?  The usual answers can be found in numerous charts available online, but the general principle is that quick fixes and cosmetic repairs recover total value, while more elaborate or specialized changes bring back less from future buyers.  If your household, for instance, is composed of people all over six feet tall, and your renovation involves putting all of  your kitchen counters up to a height you find comfortable, a new owner would probably figure that he or she had to replace them with lower ones.  If you add a bath downstairs, or a patio to the back of the house, those would be considered safe to count on recovering. Painting and landscaping are almost always smart to do.

Will the pandemic permanently change buyer preferences?  It's hard to say.  Outdoor space may get a big lift, home offices will be much more common, but should that bedroom become a gym?  That's less clear. Tastes do change over time. There are also generational issues to take into account.  Your choices may not resonate with a young family, or your decorating ideas may differ from theirs.  The latter can more easily be fixed, although they will affect how the house shows, when the time comes to sell, if they are extensive.

So, each person's conclusion may be different, but certain steps make sense.  Think about time left in a house, personalization of the work to be done, family needs and desires, and cost of renovation vs. cost of moving.  And then call your Realtor for his/her opinion--we answer these questions every day!

Get off the Sidelines

If you've been waiting for the economy to straighten itself out, and for the real estate market to be clearly on the way up, you're waiting too long. History has shown over and over again that those who act before there is certainty are the ones who make the most money. Since most purchases and sales are, in reality, driven by family issues and not by national ones, that's not so hard to prove.

We bought a condo in 1981, when the economy was bad. We got a great price on it, and we moved in. We were getting ready to have kids, and there were no children allowed, so we put it on the market and bought a house. As soon as we moved into the house (the day we closed, in fact), we found out I was pregnant, and we'd bought a one-bedroom house. Although we planned to renovate, another, bigger one came on the market up the street, so we bought that too. What were we thinking? Anyway, the two houses were both bought in 1983, and the first was sold that year, as well as the condo. We made money on the condo, since we'd been the first to move in. We made no money on the little house. The value of the second house doubled in the the first couple of years, as the market went wild in the mid-80s.

What's the lesson here? You could reasonably say that it is to think ahead before you buy, but that's not my point today. My point is that we made almost all the appreciation on the house that we owned when the market started to rise. We also made money on the condo on that theory. The little house we only owned for a few months, and we would have made money there if we had been willing to own three homes for longer. It's a version of timing is everything, but it requires buying early in a cycle. People who waited until later in the 80s got caught in a declining market after 1988, and weren't able to get out for what they had paid.

The parallel to today's market is: If you wait until everything is rosy, the money will have already been made by those who bought sooner. Buy now.