During several times in your adult life you will face multiple dynamic changes in your life that causes you to rethink your home and space needs. This is a result of many different life changing events. Sometimes we move our household for career or job related reasons. Other times a home move can be for personal reasons. We will restrict our focus of our discussion to life’s typical cycles from getting married to living in the empty nest.
The first milestone is generally associated with getting married. You may be renting or even own a home, but when you get married it typically results in buying a mutual home. This could be a need for additional space or this could be because you got married and both you and your spouse agreed you would get a joint property.
The second typical milestone is usually associated with having children. In these situations it is very common to move to a larger home in a specific area of your city. This is often driven by your choose in a specific school district, but more often your decision for a larger home is due to the need for more space. Depending on your financial resources, this can cause a younger couple to move away from the metro area to the outlaying areas of larger cities. As commonly known this is where you can get more home for your hard earned dollar. If you chose to buy in a large city metro area, you most certainly will pay a greater amount for a larger home in a good school district.
The third typical milestone where life’s cycles challenge your housing decisions is when the children leave the nest. This can cause the homeowner to evaluate their space needs and determine that the floor plan no longer serves their future lifestyles, which can also result in another home change. Unless you are prepared to substantially down size, it can be socially and emotionally challenging to move from the family home. This leads to deliberation regarding lifestyle chooses with respect to how your home will serve your future needs. You love the neighborhood, the home will accommodate extended family visits and you like the home that you are living in. So instead of seeking a new home, you give some serious thought to identifying your changing lifestyle needs and begin to reimage how you can repurpose your space needs. This often leads to adding an addition to the existing structure and reinventing the your space.
There are many benefits for a homeowner to consider expanding the envelope of their existing home. The most significant benefit to building an addition to your existing home is that it simply the best and most cost effective financial alternative you have to a space problem with your home. Adding a home addition becomes extremely financially attractive compared to buying a new home when you take in to account the expenses associated with the relocation cost. When you add up the cost of commissions, closing cost and moving expenses associated with buying a new home, the cost of a major addition or renovation becomes an attractive solution. We will review a few supporting financial scenarios further in this discussion.
The second most significant benefit to the homeowner is that you can design nearly anything you desire. After you have carefully considered your changing lifestyle needs, it is helpful to discuss your options with a design build remodeling professional. They will listen to your needs and review any documents or ideas that you present in an effort to explore possible options available. Once you explore your feasible options you should consider contracting to design your improvements to determine if they will fit your expected future needs. A professional design build general contractor should be able to design your addition and improvements within your target budget.
One of the important matters in weighing alternative considerations is understanding the inherent value loss in the selling and buying transaction process. When you add square footage to the your home you increase the value while preserving the capital appreciation in value accumulated over the years. When you sell your existing home and buy another home in a nearby neighborhood, the increased value appreciation from your existing home is lost in the transaction. You do not actually loss the cash value during the transaction, but rather your capital appreciation is offset by the sales price of the home you are buying. A portion of the sales price of the home you are buying reflects the capital appreciation that the seller has accumulated. Hence your capital appreciation from your sales price is negated by the sellers capital appreciation realized.
Depending on what area of Houston you live, the home and land prices have traditionally increased by 3% – 6% annually. Based upon a modest home value in metro Houston of $700,000 over a period of 5 years would represent $175,000 in value appreciation at 5%. If you use the average value of $1,300,000 for higher end neighborhoods over the same period at 5% annually, the appreciation would be $325,000 in a 5 year period. In both these cases over a short period of time, the value appreciation by itself would more the pay for your addition or major renovation to your existing home.
Another important often overlooked matter in a sell / buy scenario is the actual cost associated with transaction cost. The transaction cost is represented by sales commissions on your sold property, your closing cost on both sides of the transaction and your moving cost. Let’s look at both of our previous scenarios (commissions 6%, closing cost 1.5%, moving cost .5%). In the case of the $700,000 sell/buy scenario, your total transaction cost would likely be approximately $56,000. Total potential value transfer loss of $231,000 = ($56,000 + $175,000). In the case of the $1,300,000 sell/buy scenario, your total would represent approximately $104,000. A total potential value transfer loss of $429,000 = ($104,000 + 325,000). It is worth mentioning that these cost do not take in consideration the expenses associated with making any personal improvements to the new home you might purchase.
One final benefit worth your attention if you are approaching the senior age group. For those homeowners whose home represents their homestead in Houston and are over the age of 65, they will receive additional benefits in favorable property tax treatment. There are additional tax benefits from the cap on your homes taxable value and additional homestead exemptions that seniors benefit from. This gets even better when you consider you can also increase the value of your existing home’s square footage while enjoying the valuation cap after improvement cost adjustments.
So as presented, you should give a home addition and/or a major renovation some serious consideration as a viable option to seeking an alternative home when life’s home cycles present you with some challenges.