Housing Question: Build New Home or Renovate Exisiting

[gkeep84]

Happy New Year to the WCI crowd! I am extremely thankful for the thoughtful guidance and opinions of the WCI forum. With your help, my wife and I have been able to make significant progress on numerous financial fronts (student loan refi, backdoor Roth, increasing net worth).

We are currently contemplating a home upgrade in our current area in the midwest. Our current location is ideal given the proximity to work as well as close proximity to family (less than 15 mins for both); however, our current 1800 sqft home is starting to feel crammed with a 3 year old daughter and another child on the way. We built our current home prior to my intern year (2011) knowing that I would be staying in the immediate area as faculty. Fortunately for us, the home value has increased approximately $100K since our purchase.  We have started comparing existing homes needing renovation with building a new home from a well-known home builder 1-2 miles away. Many of the existing homes will need $50-90k of aesthetic upgrades (built in late 1990s or early 2000s). The new build homes are selling for approximately $50k more that similar homes in the surrounding neighborhoods.  Since we are familiar with the new build process, we are likely leaning toward the new build; however, I am curious to see the forum's thoughts on new build versus renovate. Given the kiddo on the way, we would likely do most renovations prior to moving in if we choose an existing home.  To keep things succinct, here is my quick pro/con list for each given the same approximate location.

New Build:

Pro: Select all floors, finishes. No need to remodel. New roof, furnace, water heater. Comparable values in same subdivision. Move in ready

Con: Cost at least $50k more depending on floor plan mods, Cost of new landscaping, Living around new construction/traffic, headaches of home building over 9-12 months

Existing Build with Renovations:

Pro: Established subdivision, No surrounding construction headaches, lower asking prices (save $$)

Con: $$ needed for renovations, possible new appliances, furnance etc. Concern for updates pricing home out of the surrounding subdivision

 

I appreciate anyones thoughts if you have been through either process (or both!). Also, I am interested to see if I am missing any other points about the two types of home.

 

[artemis]

One new build con you might want to add to your list:  new builds generally go up in areas where there is still buildable land available (obviously).  That means if something happens and you need to sell your home before the surrounding area is completely built up (which could take a decade or more), your now not-so-new home is competing with new builds for buyers.  You may not see any appreciation; in fact, you may even lose money on the sale.  (Ask me how I know!)

Existing builds are more likely to be in areas which are fully built out, so if someone wants to live in that general area the only choice is existing construction (unless the properties are in such poor condition or so obsolete that buying the property just for the lot and doing a teardown is realistic).

[hightower]

Some thoughts.  This is coming from someone who just completed (well almost, they're never fully done) a 4 year renovation of an 1880's Victorian home.

Pros to renovation:

The greenest home is one that's already there. So, if you are environmentally conscious, renovate.

You get to design the house the way you want it.  Big plus if you plan on staying there long term.

Can be done cheaper if you're careful about sticking to a budget

If you are handy you can do a lot of things yourself and save big bucks

Cons:

Some people aren't cut out for the stress involved.  Picking and dealing with contractors can be a pain and you have to be careful to pick an honest, good one.

Takes time.  It can be many months to complete everything.  Any contractor that is ready to start work immediately, is probably not the one you want to hire.
Messy and noisy, if you plan on living there at the same time you're renovating, be ready for the mess.  Dust, debris, etc.

[hightower]

And if you do renovate...Never pay a contractor any money up front.  An honest renovation company will not ask for any money until the job is done to your satisfaction.  On big projects they may ask for 1/2 the payment after 1/2 the work is done or something like that, but if they ask for money up front, don't hire them.  Use angieslist to get reviews of good ones in your area.  I can't tell you how many horror stories I've heard from docs I work with about this sort of thing.

[gkeep84]

Thank you for your thoughts artemis. Our area has had pretty significant building boom in the area (New subdivisions: 2 Toll Brothers and 3 Pulte within 1 mile radius) and our home would be competing with the new builds when we decide to sell. According to identical comps recently sold on our street, our home value has appreciated; however, your point is well taken about the possible loss in value with surrounding construction especially if needing to sell after a short period of time.

[gkeep84]

Hightower,

Great insight about the renovation side. We would likely attempt most major renovations prior to moving in due to the presence of a tenacious, clumsy 3 year old  daughter and another kiddo on the way. I do not think living amidst construction would be the best for us. Luckily for us, most of the renovations may be mostly aesthetic (kitchen remodel) with only minor structural changes of a late 1990s/early 2000s. Great point about the contractor availability and money after completion. The existing homes would also avoid the possible extra expenses of finishing a basement or landscaping. I would love to learn all of the DIY stuff but I do not think that is included in my wife's timeline.  :P  We have learned over that last couple years that the time together as a family with worth the premium of having the rehab done by professionals. Congrats on the long term, almost finished, Victorian!