Is it better to renovate or buy a different home?
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Are you wanting to make a change? Do you feel that you and your family could benefit from a home update or home improvements?
Homes are or should be our places of refuge, a place to recharge. They should bring us joy and support our lifestyles and our aspirations. When we wake up and start our day we don’t want to lament the state of our homes. Creating a space that brings you joy and inspires you can help support your psychological health and facilitate becoming the best version of yourself. Or your family’s best version of themselves.
You could embark on a renovation project to create a joyful and more suitable space or you could simply find a different space that already exists and trade your home. Both decisions will have their own challenges. Moving can be stressful and so can living through a renovation.
There also is a third option which I recommend that all of our clients at least consider. And that is to simply buy another home and not sell your current home. Of course, I believe that owning real estate can be a powerful and predictable way to create and build wealth so why dispose of an asset.
My wife and I decided to buy another home without selling our current one. We were able to use known market rental rates to help us financially qualify for both homes. We chose that option primarily in order to build our retirement savings and retirement income.
Life has become much more expensive. Many of us may be forced to reevaluate and adjust our plans and expectations. What if, instead, you could adapt your life situation to keep ahead of inflation?
While our personal home could use an update, it doesn’t need one. We could simply do some minor repairs to make it more attractive to a potential tenant.
We could have chosen to remain in our home and renovate, however, we work from home so living through a renovation is not practical for us.
And embarking on a major renovation this year has some additional challenges compared to other years. The cost of many building materials has skyrocketed in the last couple of years. There are fewer choices available for many building supplies as well as delays in delivery.
It also may be more difficult to find contractors who have availability. And you will likely have to pay more to hire the contractors this year. It could very well be less expensive to just purchase a newer or renovated home.
For us, the “easy button” was to find and purchase another home. We no longer need all the space we have. Moving will also reduce our net monthly housing expenses. Our monthly living costs will be reduced as we purchased a home with an income-generating legal suite. The home we purchased is newer and more energy-efficient.
By buying a newer home we also delay maintenance costs. Our current home soon will require maintenance (new roof, mechanical, appliances). As a rental property, those expenses or a portion of them are tax-deductible whereas they would not be tax-deductible in our primary home.
Our decision to purchase was primarily a financial decision.
I suspect real estate in Alberta will behave similarly to how it has behaved in the past. Our home prices doubled in 1975 and then again in 2007. Since 2007 our home values have remained mostly stable. Condos, however, are still well below their peak value in 2007.
We decided to make our purchase in January of this year when we saw the market shifting. I believed we could see significant gains in values in Alberta this year as demand was creating a shortage of supply. We wanted to ride that potential wave and realize gains on two homes, not just one.
It looks like the gains I thought we would realize will now be spread out over two years or longer. The slower increase in values is an opportunity for more of us to save a downpayment and get into a home of our own while they are still priced below what is deemed affordable.
If you own just one home and home prices rise significantly it’s not necessarily a windfall as you still have to live somewhere. However, if you own more than one home, then yes it would be a windfall and it would provide more options. You could sell, cash out and retire earlier or simply keep the home(s) especially if it is producing additional monthly income.
I believe Alberta real estate is primed for another price correction. And, I believe that correction will be up not down.
Many investors never sell their homes, they simply refinance and use those monies to re-invest or for travel, retirement or whatever. Capital gains tax on real estate is only payable when you dispose of the asset, not when you pull out equity.
Why not consider all your options? You may be able to refinance your existing home and pull out a down payment for a newer home. If you are buying another home to move into, you may be able to do that with as little as a five per cent down payment.
Making the decision to purchase a more suitable home without selling your existing one could not only improve your life situation but also help to ensure that your children also have the opportunity to benefit from home ownership and the wealth that real estate can create.
Dennis Faulkner works as a realtor at Re/Max River City and holds a B.A. degree with a major in macroeconomics. He can be contacted to answer your real estate questions at firstname.lastname@example.org.