Remodel or move?

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boglebrain
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Remodel or move?

Post by boglebrain » Wed Aug 09, 2017 2:32 am

I live in a very HCOL area. We bought our home 6+ years ago before home prices shot up. We need more space for our growing family and one option is we can add a bedroom and bathroom. I don't think aesthetically it would be ideal given constraints and we wouldn't mind a bit quieter street and larger home and lot. If we move, however, we will be looking at an 2x property tax increase and having to lock up more money in a house. Our home value has gone up a lot so in some sense we are transferring that asset for another asset and then putting in some more on top of that to get the ideal home. The other advantage in moving is locking in the $500k tax-free gain now. We have seen about $600k-$700k in gain and put in $100k of work so there would be little to no tax on the asset value increase. I have no interest in becoming a landlord even though our mortgage is close to 2%.

Part of me just wants to keep it simple and figure how to make what we have work...My wife and I have always been very bogleheady and lived simply and below our means out of necessity and out of desire. However part of us want to splurge a little here and spend a little on some luxuries. I realize this is a good "problem" to have and recognize how fortunate we are to be in this position. Also when I talk/think about the numbers it is absurd. I also don't want our kids to get a totally warped view of society if we move but I think they are already seeing that where we currently are.

Vanguard Fan 1367
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Re: Remodel or move?

Post by Vanguard Fan 1367 » Wed Aug 09, 2017 3:01 am

I faced the same decision a couple of years ago. I had a house in not a great neighborhood needing a lot of work to get it up to the standard where my wife would like it (granite countertops, nice driveway, nice kitchen, nice bathrooms, beautiful landscaping, good windows, newer plumbing and electric, etc.) Our decision was to move and so far the wife seems to be much happier in the new to us place.

It is your decision but do run the numbers and evaluate the potential for getting what you want. Someone said that remodeling costs more than building new because you have to dismantle the old first.

I am happy that I moved, it sounds like you might be happier with a move too.

My property taxes went up, like yours will, double, but with "the investing advice inspired by Jack Bogle" we are doing fine with that so far.

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teacher
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Re: Remodel or move?

Post by teacher » Wed Aug 09, 2017 8:05 am

We took the remodel route. We thought we were missing out on what new homes have to offer, but after months of looking at new houses, we came to appreciate our house more. We like the unique floor plan, our mature trees (minus the squirrels) and easy access to shopping, and of course the very low property tax which, in California, does not increase more than 2% per year. We remodeled the kitchen, three bathrooms, lighting in all rooms, paint, entry and interior doors, floorboards, blinds, H&A, the works. We chose everything, and designed the changes to our liking. The only thing we could not change without revamping the roof was the master closet. Small inconvenience for a home that is truly our own, fully paid for and meeting all of our specifications.

stan1
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Re: Remodel or move?

Post by stan1 » Wed Aug 09, 2017 8:40 am

To me the key would be "location". You could always get a larger lot or house, but is the neighborhood viewed as one of the best in your city? Close to jobs? Homes well maintained? Good public schools? If you like the location and others also like it (for resale) I'd strongly consider the remodel.

We downsized our house a few years ago with about $450K in realized capital gains. At the time I realized the transaction costs of selling and buying another house would probably offset most of any tax we might owe so selling before we had $500K in gains was not a major consideration.

If you are in California another consideration to keep in mind is Prop 60/90 that lets you transfer your property tax basis to another property when you downsize after age 55. It can save you tens of thousands of dollars if timing works for you.

ResearchMed
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Re: Remodel or move?

Post by ResearchMed » Wed Aug 09, 2017 8:49 am

boglebrain wrote:I live in a very HCOL area. We bought our home 6+ years ago before home prices shot up. We need more space for our growing family and one option is we can add a bedroom and bathroom. I don't think aesthetically it would be ideal given constraints and we wouldn't mind a bit quieter street and larger home and lot. If we move, however, we will be looking at an 2x property tax increase and having to lock up more money in a house. Our home value has gone up a lot so in some sense we are transferring that asset for another asset and then putting in some more on top of that to get the ideal home. The other advantage in moving is locking in the $500k tax-free gain now. We have seen about $600k-$700k in gain and put in $100k of work so there would be little to no tax on the asset value increase. I have no interest in becoming a landlord even though our mortgage is close to 2%.

Part of me just wants to keep it simple and figure how to make what we have work...My wife and I have always been very bogleheady and lived simply and below our means out of necessity and out of desire. However part of us want to splurge a little here and spend a little on some luxuries. I realize this is a good "problem" to have and recognize how fortunate we are to be in this position. Also when I talk/think about the numbers it is absurd. I also don't want our kids to get a totally warped view of society if we move but I think they are already seeing that where we currently are.
First, you are probably in a high tax bracket (??). If so, the savings on that tax-free $500k can be reinvested in new house (and then some years in the future, rinse/repeat if tax code allows - not to mention tax code *now* allows that $500k...)

Now... you want to keep it simple.
Have you ever lived in a house during major renovations?
To be sure, adding an addition is probably less intrusive than renovating kitchen/baths/etc., that are typically in use.

And... can you afford it?
If so, and with a growing family, you'll get quite a few years of improved home life out of more of a dream house, vs. an add-on that might not be ideal (as in, would you have purchased a home like that?).
Don't entirely ignore quality of life, if you can comfortably afford the "other" house somewhere.

Much of this depends upon your current finances, including both income and savings of various sorts.

RM
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hand
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Re: Remodel or move?

Post by hand » Wed Aug 09, 2017 9:01 am

Make sure you include transaction costs in your calculation. Depending on locale, you're likely paying 6-8+% (6% realtor fees + 2% misc fees and taxes) not to mention moving and furnishing expenses. On a $1M house that is $60k-$80k of value destroyed if you move rather than upgrading your existing home.

If you want another location or bigger lot or different neighbors, this cost may be worth it. If you just need more interior square footage, I'd thing remodel likely gets you more bang for your buck.

Note all bets are off if you start considering the relative value growth potential of different houses. Irrespective of transaction costs etc. the house that doubles in value in the next 10 years is a better option than the one where prices stagnate. Boglehead orthodoxy would have you accept that future valuations are unknowable (which I believe they are for stocks), but in the vastly less liquid housing market, perhaps there are some inefficiencies left to exploit?

Frisco Kid
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Re: Remodel or move?

Post by Frisco Kid » Wed Aug 09, 2017 9:04 am

Does your current home/lot provide adequate storage, yard, garage space etc? Many times you can remodel adding rooms but depending on your lot size it may still be a compromise. For example our lot is 40' wide (5000 sq ft') drastically limiting our options from a remodel standpoint. We have a nice home in a great neighborhood but fight its constraints daily. 4 cars with a one car garage,etc. Consider moving but balk when considering huge capital gains as we would buy less expensive property elsewhere and the insane transactional costs involved. Good luck as you have a difficult decision and one that can have you at paralysis by analysis pretty quickly.

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Watty
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Re: Remodel or move?

Post by Watty » Wed Aug 09, 2017 9:10 am

Which is best really depends on the numbers, but it is rare that a major remodel comes in ahead of schedule or under budget and often the final results are often not as good as you hoped for especially if you will be losing a large part of your yard. Remodeling will also disrupt your life for the better part of a year.

If it is anywhere near to being a close decision then I would move.

One thing to check on is to see if a major remodel will also trigger higher property taxes. Part of getting building permits is so that your property taxes can be adjusted for the improvements and how that works varies a lot with the local laws.
boglebrain wrote: I also don't want our kids to get a totally warped view of society if we move but I think they are already seeing that where we currently are.
Depending on the age of the kids you may not need the extra space for more than a limited time. If they are older then one option to seriously consider would be to sell your house and rent a bigger place for a few years until they are ready to leave. You could then buy a place that would work well for you when you are retired and older and things like stairs might be more of an issue and you would not need to worry about how good the schools are.

It was a long time ago but I used to live in the Bay Area and that area has always been expensive. One of the things I saw was that some of my older coworkers had grown up kids that could not afford to move out to a modest(or even dumpy) apartment even with roommates. The kids were still living at home well into their 20s and that was often not a good situation. You should consider what staying in the area will mean for your kids when they get to be that age and if they will be able to afford to live near you.

I live in a low to medium cost of living area now and my grown up son who is in his late 20's and his wife and kid live about ten minutes away from us so we get to see them and our grandkid frequently which works out well for us.

Virtually all of his friends have also been able to buy homes by their mid-20s'.

My son is doing well and was easily able to afford a nice house but we have some friends with a kid that was dyslexic and barely graduated from high school. He at one point he was working at a chain muffler shop which was a good honest job but I am sure that it didn't pay a lot. Even on that salary he was able to afford to buy an older small house in a less desirable but still OK area.

Now would be a good time to consider moving to a lower cost of living area. There are lots of areas where $500K will get you a McMansion. For example here is what you could get for that in a desirable suburb of Atlanta that is near where many of the high tech companies are. That area also has very well rated schools.

http://www.realtor.com/realestateandhom ... A631373302

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Pajamas
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Re: Remodel or move?

Post by Pajamas » Wed Aug 09, 2017 9:26 am

Have you considered letting some of your kids share a bedroom or even converting one or two bedrooms (m/f) into a bunkhouse and using another for a play and study room? You could probably take out a linen closet or do something else to add a sink.

It's only very recently that it has been seen as necessary for each child to have a bedroom. There are some real advantages to siblings sharing space.

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