Upgrade or renovate?

Tips

Is the grass always greener behind a new fence?


It's a familiar story for homeowners. When you first moved in, the house was perfect for your needs. A few years and a few children later, and there's just not enough space for everyone. Tired of tripping over toys, scooters and homework, you decide it's time to move.

Or would it be better to stay, and expand and improve the home you already live in?

There are a few things to consider if you're trying to work out whether the move to a bigger home – with a bigger backyard, more storage space, maybe even a pool – will really pay off.

Matt Lahood, Head of Company Sales at McGrath Estate Agents, says it comes down to weighing up both sides of the decision.

"On one hand, you may run the risk of over-capitalising with a renovation," he explains. "However, you also need to factor in all the costs of moving – when you add up agent fees, moving costs and stamp duty, that could be the equivalent of a decent renovation budget."

The case for staying put

Recent numbers from CoreLogic RP Data1 show we're staying in our homes for longer, averaging 10.5 years today compared with 6.8 years a decade ago. The high cost of buying and selling could be a factor – as property prices go up, so does stamp duty and agent fees.

A few factors that may tempt you to stay and improve:

  • You love your local community and have good neighbours and friends nearby
  • It's close to work or an easy commute
  • There's potential to add value to your property
  • You've been there long enough to have some equity, which will help you refinance.
Did you know? The most popular reason for re-financing is renovations, according to the Mortgage & Finance Association of Australia (MFAA)4

However if you need another bedroom or two – or something closer to a major rebuild – the cost (and time) involved in renovating may be off-putting.

As a rule of thumb, an attic conversion could cost anywhere between $50,000 and $100,000. A new bathroom or kitchen could set you back $20,000 to $70,000.2 Then there's the cost of living somewhere else while the work gets done – not to mention design costs, engineering and consultant reports and council fees.

To avoid over-capitalising, make sure you get a professional valuation first.

"A professional valuer uses three different methods," explains Lahood. "They look at market comparables, which a real estate agent also uses, but they then also tell you what the land value and improvements would be worth, and check the rental return."

He says a common mistake is to add another storey to a house on a very small block of land. "It's much harder to sell a five bedroom house with no garden later – people don't always want more bedrooms."

It's also important to check the true condition of your house, especially if it's old. Rising damp, dodgy wiring or rotting joists could add to the total cost of rebuilding. An inspection or engineers report could be a valuable investment, giving you all the facts before you make a decision.

The case for making a move

If you're not ready to engage an architect and go through the pain of council approvals, take some time looking at what's available in the market and get a valuation. If you're able to realise some capital gain on your property, you can put it towards a better home in a different neighbourhood.

Given the costs of buying and selling, if you're going to move make sure it's to your 'almost-forever' house. Think about what you will need for the next ten years or more - including schools, transport links and all the things you consider essential to your lifestyle.

And before you make a bid on that new home, do the math on how much it will really cost you to move:

  • Stamp duty (in NSW, you'll pay more than $40,000 in stamp duty for a $1,000,000 house)3
  • Selling costs, including advertising, fixing up or styling your home and agent fees
  • Moving expenses
  • Immediate improvements to your new home.

"No matter where you move next, there's always something to do," Lahood observes. That may include fresh paint and landscaping, new furniture, or even a kitchen upgrade – whatever it takes to make your new house into a home.

So should you stay or should you go? It comes down to whether it will be easier to buy a new house that ticks all your requirements, or turn your current house into the home of your dreams.

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