Should I Rehab or Move?

rehabI am working with a couple right now that came to me with a question: We almost have our mortgage paid off and we are thinking about remodeling our house.  But we are wondering if the cost of the remodel is worth it, or if we should look at a house that already has everything we need.  What do you think?

This is a great question, and it all comes down to one thing: cost vs. value.  How much is the remodel/rehab going to cost you, and how much of it will you be able to get back when and if you decide to sell your house?

Let’s say that right now your house is worth $150,000.  The remodeling you are thinking about doing is going to cost you around $60,000.  Can your house’s value raise in conjunction with how much money you are putting into it. So, if you paid off your mortgage and put in this extra $60,000, you would have (at a bare minimum) $210,000 into your house.

Now, the next question to ask is can you find a house for $210,000 that will already have the upgrades that you want to put into your current house?  Most of the time, the answer is yes.  And most of the time my recommendation would be to forego the remodel and just purchase the house that already has what you want.

Here is why: the house that you already own has a maximum price.  In this instance, the comparable houses that were selling near this home topped out at $170,000.  That means, in that location, in that market, the highest price that people are actually paying for homes is $170,000.  You could put $100,000 into your house, and you would still be hard pressed to sell it for much above the $170,000 because that is what that location and market can bear.

Now, what about the house that is selling for $210,000 that already has the upgrades that you want?  It is already worth $210,000.  Meaning that for the same price, you get all of the upgrades that you want, and you have a house that could reasonably be sold for $210,000.

If you kept the old house and put the $60,000 into it, but you could not sell it above $180,000; you automatically lose $30,000 in equity.

Of course, all of this is based off of having houses that meet the market average.  If you have a house that is worth $150,000 that is surrounded by houses that are selling at $250,000, then upgrade, upgrade, upgrade!!!

If you are planning to live in the house for the rest of your life, and it is in the perfect location for you.  Upgrade!

If you don’t care about getting your equity back: Upgrade!

If none of those scenarios work for you, then I would recommend talking to a Realtor and finding out how much your house is worth.  Find out how much the upgrades would cost.  And find out which path is in your best financial interest.

It just so happens that I know a great Realtor who just so happens to also be a real estate investor.  One who has experience estimating (and making) repairs; as well as estimating the cost of repairs versus the value that they will bring the house.  He is a great guy, you might just know him.  You can reach him at:

515.724.3163                                                                                                   RyanLynch@KW.com                                                                       www.LynchSellsHomes.com

I would love to help!

~Ryan Lynch                                                                                                                  Realtor with Keller Williams – 10200 Hickman Ct. Ste 100 – Clive, IA 50325