Before You Spend $200,000 Renovating Your House, Do This First

I love a good renovation. I also think some homeowners are about to spend an enormous amount of money solving the wrong problem.

If you're considering putting $100,000, $150,000 or $200,000 into your house, I wouldn't start by asking which contractor you should hire. I'd start by asking: What exactly are we trying to fix?

Because there's a huge difference between loving your location and needing a better house, and loving your house but wishing it were somewhere else. One of those problems can potentially be renovated away. The other one can't.

What Can You Actually Change?

Let's say you own a house in Long Beach that you've outgrown. Maybe you need another bedroom, the kitchen is too small, you want a larger primary suite, or the entire house feels like it was designed for your life ten years ago instead of the life you're living now.

Those can potentially be renovation problems. If you love your street, your neighbors, the kids' school, your yard and the general location, investing in the house you already own might make a lot of sense.

But let's change the scenario. You want a quieter street, a bigger lot, to be closer to the beach or to live in a different neighborhood. Maybe you don't like your commute, or you need considerably more space than your current property can realistically provide.

Now I'm much less interested in the kitchen-remodel conversation. You can renovate a house. You cannot renovate its location.

Run the Move-Up Math Before the Remodel Math

This is the comparison I think homeowners miss. Let's say your current home could sell for $1.2 million and you're considering putting another $200,000 into it.

Before spending that money, I want to know what your actual financial range could buy you instead if you sold. Obviously, we're going to account for your existing mortgage, equity, financing, transaction costs and what you can comfortably afford. I'm not simply adding $200,000 to the value of your house and calling that your new budget.

The point is to compare the two choices.

Maybe you discover that spending $200,000 on your current house still won't give you the fourth bedroom, larger lot or neighborhood you've been trying to create, while selling and moving could.

Or we could discover the opposite. Maybe replacing your current house with something substantially better would require spending another $500,000 or $700,000. Suddenly that renovation looks very different.

This is why I don't think the decision is simply: Renovate or don't renovate?

It's: What does each option buy me?

Don't Assume You'll Get Every Renovation Dollar Back

There's another mistake I see homeowners make. They mentally add the renovation cost directly to the value of the house.

“We put $200,000 into it, so now it's worth $200,000 more.”

Real estate doesn't necessarily work that way. Buyers will compare your home with the other homes they can purchase in the neighborhood. The market still matters. The location still matters. The lot still matters. And there may be a ceiling on what buyers are willing to pay for a particular type of house in a particular area.

That doesn't mean the renovation is a bad investment. Your return can also be five or ten years of enjoying a house that works beautifully for your family. But that's very different from assuming every dollar you spend will come back when you sell.

Your Mortgage Rate Matters, But It Isn't the Whole Decision

And yes, I already know what many homeowners are thinking: “But I have a 3% mortgage.”

That's valuable, and I would absolutely include it in the analysis. But I wouldn't let the mortgage rate make the entire decision for you.

If you're about to spend hundreds of thousands of dollars trying to force your current house to become something it fundamentally can't become, we should at least compare that with the cost of moving. You may still choose to stay, and that may absolutely be the smartest choice.

But now you're choosing to stay because you've looked at the alternatives, not because you've convinced yourself that moving isn't an option.

Before You Call the Contractor, Call Your Realtor

Not because I'm automatically going to tell you to list your house. I want to help you understand your options before you make a six-figure decision about the house you already own.

Let's figure out what your house could realistically sell for today, approximately how much equity you have, what your renovation might accomplish, and what you could buy if you moved instead. Then call the contractor.

Because sometimes the smartest real estate decision is selling. Sometimes it's buying. And sometimes it's keeping exactly what you have and making it better.

CONTACT KRISTIN
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954-608-6582
Kristin Gutierrez
Helping Homeowners Turn What You Have Into What You Want.

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