Buy a new house or Build Addition

[purduecmpe]

Interested in what y'all think... We own our home free and clear... We are expecting in Aug. and need more space. To add the space we need to our current house it will cost roughly 20k... We have also found a nice house in a nearby community that is quite an upgrade from our place. Do we:

A) Stay out of debt and pay the cash to renovate our house?

B) Rent out our current house and use the renovation cash as a downpayment for the "upgrade" home.. Assume conservative estimates of rental income covers 100% of the new mortgage payment..

C) Hoard the cash and live without the extra space...


We have a pretty good risk tolerance, and feel the current market softness represents an opportunity to buy a home that a few years ago was 150k more expensive... So we are thinking B... Are we crazy to give up the security and take the risk?

For bonus points, if we go with B from a tax perspective is it better to take the mortgage out on what will become our primary residence or what will become the rental property?

[zetta]

We need more information about your current financial situation and the relative value of the two houses to give advice. One option you didn't list is:

D) Sell the current house and use the money to put a large downpayment on the upgrade.

One thing to look at is the school district. If you stay in your current location, will you be tempted to move in 5 years so your child can go to a better school?

[purduecmpe]

Both homes are in school districts we would be happy with... Not sure how much information I can give about our current financial situation, but we could easily make the mortgage payments without the rental income... For option D, selling the current house would just about pay for the new house...

[zetta]

It would cost 20k to upgrade your current place. How long do you think you would stay in the current house if you did the upgrade? How large of a loan would you need to take to get the new place? What are the differences between the two houses? Would the upgraded house be one that you could see staying in "forever"?

[swanson719]

Don't rent. It's a pain in the rear by all means, and definitely not something you want to try for the first time while dealing with a pregnancy and a new child. Bad stuff if you can't dedicate a lot of time and energy to it. You need to make a pretty decent profit for it to be worth your while.

I wouldn't renovate the house either. While it may sound like a good thought, you're going to have part of the house more up to date than the rest, which makes it feel renovated, and thus lowers the resale value down the road. Also, the $20K estimate,, add 15 to 20% to that, and you'd be a lot more accurate. If you aren't willing to spend $25K on the renovation then an additional amount to make sure the rest of the house has the same look and feel to it as the renovation, stay away from that.

Problem with selling and moving up is you would have to price low enough to get a quick sale in order to be able to use your current house as a down-payment. It takes a while for houses to sell for market value, so whatever percentage you take as a hit on your house, you could reasonably expect to reduce the price on the new one by the same percentage. I don't advise going into debt, so if the price of the new house after sale of your current house is more than the cost of the renovation, I would just renovate and have it done right. You're talking about spending around $30K either way. It's more convenient to move, but it's not worth it if you have to go into debt to do it.

I really like the hoard money option and stick it out for a while, then go pay cash for the new place. It might be cramped, but you're not financing anything, you're not dealing with the head-ache of a renovation, and you end up with the better house you want to begin with. Baby won't know the difference, though it may be a little inconvenient. Moving is going to be bad either way, and the difference between being pregnant moving and having a new baby moving isn't going to be very much as the mother is going to be pretty uncomfortable regardless.

[wnlbutterfly]

I have friends that are landlords, it is a LOT of hard work and unexpected expenses. I wouldn't go that route at all.

Personally, in that situation, I would probably see about selling and moving up into the bigger home. Might have to take a little less on the sale of the current home to sell quickly. Big down payment on the new house.

Best of luck!

[PrincessPerky]

I think there are more and in some ways more important questions than just finances...

have you found a home you like that is large enough/can afford? will an addition ruin the yard? would a larger house come with more or less yard? Will an addition end up looking like an afterthought? will it make your home better or just bigger? Do you relish the thought of designing an addition, or refilling a home? Would an addition be just a baby room or also new closets 'while you are at it'? Is 20K a firm estimate, or will costs go up? Have you spoken with a contractor/architect yet? How much more room do you need? How many more kids?

depending on your answers it might sway the financial aspects making you more or less willing to spend.

While I have seen many houses with additions, I only know three folks stories.

One was a woman who added a kitchen and bathroom, (it was an old house) the final look was great inside and out, though the bathroom and kitchen were the same size..quaint kitchen, huge bathroom. But she assumed she was building for herself only, only access to the bathroom was via the master bedroom...then she married a fellow with kids.

One was a family that added on a playroom..stuck out like a sore thumb, you could tell it was an add on from both the inside and outside. terrible for resale.

Another added a bedroom, bathroom and closet (again old house) very nicely done, couldn't tell it was an addition. Custom design for their no kid life, still working for them far as I know.

If you get an addition, and may need to resell don't scrimp on making it blend in, and functional for most.

[fruitbowlk]

Hoard the cash and live without the extra space...until you can save the 20k needed to build on.