Rent or Buy? Move or improve?

Has your house gotten a little too small?  Have the quirks you once found charming about the place, just aren’t livable anymore?  

A few years ago, the answers were easier. With house values climbing an average of 50% from 2001 to 2005 and lenders handing out big checks to nearly anyone who asked, you could quickly unload a too-small house and use the profits to help pay for a larger one. Or you could borrow against that growing equity to fund a big home improvement project, with the full expectation of making your investment back someday when you sold. Flash forward a few years, and the rules of real estate are not a “given”.

In this marketplace, with favorable but rising interest rates, home equity fluctuating, and banks reluctant to lend, is it smarter to move or improve? Here’s some advice to help you decide.

Has moving gotten harder?

While residential real estate has been moving more briskly in Westchester County, many towns housing prices are still flat or down since their peak in 2006, some 15 million homeowners—almost one in four—owe more on their mortgages than they could get from a buyer, according to Celia Chen, senior director of Moody’s

Still, there can be an advantage to trading up now: If your house has curb appeal and a good kitchen — and you price it right — offers will come. You may, or may not turn a big profit, but once you sell, you become a buyer in this buyer’s market. That means you’ll find what you’re looking for and pay less for it than a few years ago-depending on where you live.

To analyze your trade-up options, work with a knowledgeable local real estate agent to ballpark the price you could realistically get for your home and what you’d have to pay for the next place. Then contact a bank to see if, based on those figures and your financial situation, you’re likely to qualify for the new mortgage. Or do your research online: Investigate home values at online real estate sites and how much of a mortgage you’d qualify for at and of course zillow .com.

Improving has gotten easier

As we continue to emerge from the recession,  renovating the home you already own may be a bit easier. The construction-industry slowdown has lowered the cost of some building materials, according to Bernard Markstein, senior economist for the National Association of Home Builders. Many contractors are also charging less for labor, to compete for the smaller pool of available jobs. What’s more, you won’t have to wait months for a contractor to show up—chances are he’ll be able to start in a matter of weeks.

Of course, you’ll still need to come up with cash to pay for the project. And the news is good there, too: As a general rule, improving costs less than trading up. Figure somewhere between $100 and $300 per sq. ft. for new construction or a major remodel, depending on the scope of the project and labor costs in your area. i.e. A two-story addition with a family room, bedroom, and bathroom costs a national average of $155,365, according to Remodeling Magazine’s 2014 Cost vs. Value Report…(prices are about 20% higher in Westchester County)

Now more than ever, though, you need to make sure that you invest your money wisely. In other words, will your $75,000 kitchen remodel increase your home value by $75,000 — remembering that you have the utility and pleasure of using this investment for years.   For guidelines, check out the some of our related blog posts.

To assess what’s right for your particular house, let your neighborhood be your guide. If there’s any chance that you’ll move within the next 10 years (and in this economy, who can be sure?) keep your improvements in line with those of other houses on your block, or you risk losing the money when you sell.

The most important considerations haven’t changed

Your house isn’t just your largest investment, of course, it’s also the place where your family lives. Financial considerations aside, the question of whether to move or improve should be decided by the things you cannot change about your current home: the school district, the amount of traffic on your street, the size and layout of your yard, your commute, the ease of access to markets and malls, and your neighborhood quality of life. If you love the spot, improving makes sense. But if a different location would be an improvement in its own right, then trading up could be the way to go.

Rent vs Buy    

Here is a great little calculator that you can input your criteria and have a quick answer….Not surprisingly, after a few years in almost any case, the scale tips towards buying.