Renovating Your Home or Moving: What Makes More Sense?
Whether selling your home and buying a new home or renovating your current home, the one common factor is your desire and/or need for change.
Ultimately, the decision between these two choices comes down to your financial means and the reasons you want or need a change in your living space.
What is Driving Your Need for Residential Change?
There can be many reasons for wanting a residential change, and you should be clear about which is driving your decision. Some questions you may want to ask yourself are:
- Is your family growing or shrinking and do you need to upsize or downsize your home?
- Is your decision being driven by a change in employment to a different location?
- Is a change in your financial circumstances necessitating a move?
- Does your current home require major repairs and/or upgrades?
- Do you want to live in a different environment (urban vs. rural, large city vs. small town)?
- Has your neighborhood changed since you first moved there, making you want to move out?
Factors to Consider When Renovating Your Home
When considering a home renovation, you should consider whether the cost of renovations will be reflected in an increase in your home value. As well you need to know how much is available to you in savings and/or home equity for the immediate financing of a renovation, including related costs.
Other factors to consider include:
- The cost of skilled labour and materials have been constantly increasing.
- The final renovation cost is most likely to be higher than the original estimate.
- You may have to move out temporarily depending on the extent of renovation, and the cost and inconvenience of this should be considered.
- Storing furniture during the renovation and/or new furniture you may want once the renovation is completed both add to your costs.
- The cost of permits and inspections should be included in the estimate.
- If the renovation is for a qualifying relative who is a senior or an adult with a disability, the MHRTC-Multigenerational Home Renovation Tax Credit may apply up to a maximum of $7,500: 15% of the $50,000 cost.
Factors to Consider When Buying a New Home
When considering buying a new home, there are many factors to consider. The first and most important is to be clear on what it is you are looking for in a new home – what are the non-negotiables e.g., a minimum number of bedrooms or a finished basement, and what are the nice-to-haves e.g. a ground floor powder room or a nanny suite.
The most important financial consideration is whether you have enough savings to cover a down payment. However, there are many other financial considerations, which include:
- Commissions on the sale of your existing home can be up to 5%.
- There may be closing costs on your new mortgage loan.
- There may be early mortgage cancellation penalties on your existing mortgage (can be up to 3 months’ interest plus an administration fee).
- The interest rate cost of your current mortgage (which may be locked into a lower interest rate) relative to a new mortgage.
- You will face legal expenses.
- Land transfer taxes can be substantial.
- Your new home may require partial repairs/painting/minor remodeling to make it move-in ready for you, adding to your costs.
- Your existing home may need renovations and/or staging to make it sellable for the best price which also adds to your costs.
- There will be the cost of movers and time to pack up all your belongings.
You also need to consider the dynamics of the current real estate market, for instance is there potential for a bidding war for the new home you want which might drive up the price, or is it a buyers’ market? It’s prudent to factor in the time cost of looking for a new home, which depends on the current real estate market as well as luck.
Which Option Is Best for You?
Everyone’s reasons and needs are different so there is no right or wrong answer as to whether you should renovate your current home or buy a new one.
Estimate all the costs of moving relative to the costs of a renovation so that you can make a more informed decision. Give yourself enough time to make the right decision for your needs and desires as it is likely to affect your lifestyle for many years to come. Be sure to check if you qualify for the GST/HST new housing rebate if you paid GST/HST on a newly built home or a substantial renovation.
This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.