Renovating an Existing Home instead of Buying a New House
Faced with tight inventory and high housing prices, the pros and cons between renovating existing homes and buying new ones need to be recalculated.
Since the outbreak of the COVID-19 pandemic, the real estate market has also set off a home buying frenzy. During these turbulent times, buyers looking to relocate have always preferred residential properties that are ready to move in right away. Few people are willing to renovate their homes. This wasn’t a common option before the pandemic, and now with supply chain crises and labor shortages, both financial and time costs are an issue.
While two years of relentless price growth, coupled with rising mortgage rates and inflation, have created an unprecedented sensitivity to home prices. Faced with financial constraints and a dearth of quality listings, some potential buyers are trying to figure out if the high cost of a new home is worth it, and renovating an existing home may not be as frustrating as it might seem. More people are now looking to renovate their homes, or in part because of market pressures. For homeowners who have considered buying a new, larger home, upgrading their existing home may now be more cost-effective in terms of financial and overall planning.
Currently, homeowners enjoy a number of benefits when renovating existing homes. For one, loan rates can be much lower, especially when they lock in ultra-low rates of around 2% through refinancing, which some people do. According to NAR’s 2022 Remodeling Impact Report released in April, interior renovations such as hardwood floor polishing, wood floor replacement, insulation upgrades, and basement-to-living areas are the most likely to result in The owner recovers the cost and even increases the resale value of the home in the future.
Some clients are not planning to sell their existing home and are considering adding a matching living unit to the homestead. Given current home price levels and competition, this may be a better option than blindly jumping into a bidding war with a crowd vying for a larger home, especially if the cost of buying a new home outweighs the cost of renovations. Prime location is another important factor driving homeowners to renovate existing homes. I’ve found that many clients would rather invest in rebuilding their homes from scratch than relocate because they can’t afford to leave a prime location with views of Sydney Harbour or the beach next to them. While renovations or rebuilding projects can be daunting at times, there are several situations in which it may be wiser than buying a new home.
Properties for sale are expensive and of poor quality
Perhaps the biggest impetus for more homeowners to renovate existing homes is not just the lack of inventory on the market, but the poor quality of the few listings for sale, which explains the recent surge in house prices. For buyers with a budget of $3 million to $10 million, they have said, ‘I’m not going to spend a fortune on a new home that still needs renovations. Frankly speaking, some of the properties for sale are indeed of poor quality, and certainly not to the satisfaction of buyers. This type of buyer always puts quality first. If they feel they can find a way to improve the existing home, even if it takes a year and a half, they will not hesitate to buy a home that someone else has renovated and sold, but the quality is not satisfactory.
In markets across the U.S., there has been a surge in “flipping” of homes that change hands after rapid renovations, changing how buyers view new-build properties. In Brooklyn, there has been a surge in low-cost townhouses known as the “developer’s formula.” After the developer bought it, they quickly renovated it, installed central air conditioning, and then resold it for a big profit. However, after the buyer moved in, they found that there were many problems, such as the air conditioning system was not installed in place, the cabinet material was very cheap, and the floor began to rise. That’s why I discourage clients from buying fast-renovating properties, because you’ll often pay a premium for poor-quality renovations instead of doing it yourself and reap the same appreciation bonus when you resell it later.
Tax burden becomes a factor that cannot be ignored
Aside from landscaping, many homeowners may end up opting to renovate their home rather than buy a new one for one simple reason: lower taxes. In Florida, when you move, you are taxed on the assessed value of your new home. For example, if your new home is valued at $2 million more than your original home, you will pay up to $40,000 in property taxes, but not a cent if you renovate your current home of taxes.
In some cases, the tax dividend is so substantial that buyers are willing to undertake a full-scale construction project. In the next few years, the “baby boomers” will usher in the peak of retirement, and many of them plan to move to Miami, but they are not in a hurry. For this type of buyer, the sale price and taxable valuation of a home in a prime location can be as high as $24 million or $25 million, but if a buyer chooses to buy a home in a similar location for $10 million, then Spend another $5 million to build your own home and you’ll end up with a property of the same value, with much lower taxes in the meantime. The actual sale price of the home is closer to $24 million or $25 million, but for self-built homes, the taxable valuation may only be $12 million or $13 million.
Cost-benefit analysis from multiple perspectives
Over the years, luxury home buyers have paid little attention to older properties, but if they are willing to put the energy into renovating a prime property in a prime location, it can be a great option. In the tight San Francisco market, I’ve seen buyers who can’t afford a new home in a good location, they’ll fall back and buy an older home that’s in dire need of a full refurbishment, and are willing to pay a little for it. years of construction. That way, they end up with a property that offers the best of both worlds in location and quality. This is a direct and effective means of realizing house appreciation.
In some cases, an older-looking home may be more affordable, but in fact only require relatively simple cosmetic upgrades rather than drastic renovations. Some homes in need of minor repairs will be significantly discounted in price, and these properties are ready to move in, but may not be 100% aesthetically pleasing to today’s buyers. Now is a good time to buy this type of home on the right, and while it’s not immediately satisfying in terms of aesthetic design, it’s a great location and a good structure. Tiles and cabinets may need to be replaced, but the structure is strong and well maintained, and there is absolutely no need for a full remodel.
Sometimes, people can’t see the essence through the phenomenon, but they are rushing for new houses with fierce competition. As with any major expense or large project, you must have a clear understanding of the cost and schedule of the entire project. It’s best to discuss with the contractor before you act, and have all the materials and materials you need ready so that there is no delay in the project. My advice to homeowners who are hesitating between trading in a new home and upgrading an existing one is that while a renovation is a big project, given the current state of the market, rather than put the house on the market and go to great lengths to get another one Instead of finding the perfect property for your needs, it is more feasible to make your existing home your ideal home.