How to Choose Between Adding an Extension or Buying a New Home
It’s a fact of life that we need more space as time goes on. We acquire new things, new hobbies and new family members, and for all this we need a place . One day you wake up and realize that the charming two-bedroom house you bought 10 years ago is no longer so charming: you have a garage full of exercise equipment, your mother-in-law is sleeping on the couch, and the new nursery’s room is actually your walk-in closet.
In such situations, the obvious step is to buy a new, larger home . But sometimes it makes sense to renovate your current home by adding an extension. Both are large, expensive projects with distinct advantages and disadvantages, so how do you choose between moving your entire life to a new place or radically upgrading your existing home? Here’s what you should consider.
Space
First, consider how much more space you really need—and here, it’s best to be fairly free. Will another room give you what you need? Showdown in the kitchen? Or do you need lots of new space for your growing family and collection of classic arcade game cabinets? If an extra bedroom, sunroom or expanded kitchen solves your problems, then an extension could work. On the other hand, if you need to double the size of your home, it’s probably better to buy new.
Another space-related question is whether you really need more space or whether you just need to make better use of the space you already have. If you have a bedroom that is currently being used to store bin bags full of old clothes or boxes of items left over from your last move, then paying for storage space and reclaiming that space makes more sense than an extension or new home .
Finally: do you have space available? If you can technically extend an extension to your property, but it will cost you most of the outdoor space, it’s worth asking yourself if it’s worth it. Sure, you’ll have more space inside, but if you lose the ability to enjoy fresh air, you might not be happy in the house and end up moving anyway.
Expenses
If you decide that you really need more space, cost will be one of the most important and most difficult considerations. If you need to finance a new home or extension (which most of us will), your first stop is to compare the costs of that financing. Right now, for example, taking out a home equity line of credit (HELOC) to pay for an addition averages around 9% interest , while average mortgage rates are around 7% . Additionally, there are closing costs to consider, which can eat up the equity you might be able to cash out—they average around $7,000 on a new home purchase, and closing costs on equity lines can run into the thousands of dollars .
Of course, depending on how much equity you have in your current home, you may need to borrow a lot more to buy a new home than to add an addition; The cost of a new home in the United States averages about $500,000. Extensions can be much cheaper—the average cost of a home addition is around $50,000 , although a luxury home can cost upwards of $150,000. Finally, think about moving costs: local moves can cost over $2,500 , while long-distance moves can cost up to $10,000, depending on how much stuff you have and how far you’re moving. In other words, it will almost always be cheaper to add on to your home than to sell and buy a new one.
Another thing to consider is the relatively low return on investment (ROI) of add-ons. Most add-ons only return 50-65% of your investment in the form of a higher sale price. But choosing an extension likely means you won’t be moving anytime soon anyway, and the extra space will add more value to your existing home, increasing your equity.
When you add up the total cost of an extension with all the costs associated with buying a new home and moving, it will be easier for you to decide which option is best for you.
Intangible assets
Of course, money isn’t everything, and there are other things to think about when choosing between a new home and an extension:
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Location. If you love your neighborhood, have kids in good schools, and/or have close relationships with your neighbors, moving can be quite disruptive. If you can’t find a larger home in the same area, adding an extension will allow you to maintain consistency in other aspects of your life.
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Inconvenience. The extension is a major construction project. If you have to stay home while this is done, you will be living in a noisy, dirty and disturbing environment for weeks or months. Or you’ll have to add rental costs to your profit, which can change the math on which option makes more financial sense.
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Unknown. No house is perfect, but you know the house you’re in. You know his weaknesses and shortcomings, his hidden amazing features and problems that always arise. A new home is a mystery, it can be amazing! This could include a leaking foundation, a cracked foundation, or a draft. Sometimes the devil you know is preferable to the quagmire .
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Neighborhood. An addition makes your home look larger both outside and inside , which can cause it to stick out like a sore thumb in your neighborhood and may annoy your previously friendly neighbors. Having an oddly shaped home that’s too big for the block can also hurt your chances of selling in the future. Ideally, the extension should look like a natural extension of the house, and not like something stuck on by aliens who don’t understand how humans work.
The choice of moving to a new home or adding to your existing one is never easy. But analyzing these numbers and considering intangible assets will lead you to the right decision.