Buying used vs. Upgrading and expanding current home

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hameshatumkochaha
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Buying used vs. Upgrading and expanding current home

Post by hameshatumkochaha »

Hi,

Greetings!

My wife and I bought a ~2900 sq ft newly built home in 2013 at a great location in the Phoenix valley (AZ) with cash ~$300k, which if we sell now might go for ~$680k minus ~$50k agent etc fees (~$220s/sqft). My wife wants larger area and some large ticket upgrades in the house. Personally, I don't care but since "Happy Wife is Happy Life" :) , I am ok to go with it. After touring houses ~4000-4500 sq ft which go for ~$200/sq ft and are ~10 years older than ours, we found that the bottomline would be ~$900k. I have cash enough for the downpayment at 20%. My most other non-retirement assets are in SPY/QQQ which I prefer not selling unless needed. I will be opting for first mortgage (~3%) then I will likely will pay-off a large chunk after selling the current home. After checking out many new and used houses, my wife felt that none of the houses are as she desires, albeit some are close (which end up a little on the expensive side) with some changes are still going to be needed.

We have the following options:
1. Add more area and some upgrades (carpet -> hardwood etc) to the current home. I don't have quotes yet. We are looking at ~650-900 sq ft addition plus ~$35k for a small pool.
2. Buy a new home (~$820k) from a builder and upgrade ($150k) and (hopefully) live for a long time (~$230/sq ft)
3. Buy a used home (~15 years old) and some upgrades (~$20k) goes for ~$200/sqft.
The risk with a used home is we might not know any damages etc that inspection might not catch. We will have a lawyer on a retainer to checkout our contract etc starting 2022 (I did not anticipate this change would be needed in 2021 so did not sign up for one).

Questions:
a. How would you go about getting best quotes for the current home upgrades (room additions etc)
b. What is the current rate range per sq ft for addition of area for an existing home? I saw on a website that the range is ~$30-100/sq ft. That is a vast range so was not sure
c. If we were to go with home upgrades, we might be competing with large companies for the labor and material etc. Would you still go ahead vs. wait (want your input especially if you have experience in house improvement market)? My builder's manager, who I have kept in touch with, said yesterday that they are having difficulties finding labor...
d. What are some tradeoffs between Options 1, 2, 3 that I might not be thinking about?
e. Say we modify the current home's floor plan with a contractor who has an engineer and an architect on staff. How do I find out what is considered "Aesthetically good" because my wife's main issue with the current home is that? She likes the efficient floor plan upstairs but she finds the downstairs to be non-"fancy" and non-"aesthetically good". I understand that Beauty lies in the eyes of the beholder and what one finds good today might not like tomorrow. What I don't want to do is to modify the house with what we think is good but ends up being a patchy ugly work... I am an engineer; not trained in architecture.
Any other relevant input is also appreciated...

I am sure I am missing some details that you would need to help me best. Please let me know what it is and I will reply/edit.

Thanks!
dukeblue219
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Re: Buying used vs. Upgrading and expanding current home

Post by dukeblue219 »

Only in America would we refer to a home as "used." I know what you meant, but I've never heard someone call it that before :D
Mike Scott
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Re: Buying used vs. Upgrading and expanding current home

Post by Mike Scott »

You need real quotes on the expansion project to know the local range of costs. In any case, you should be able to get a fair amount of expansion for the price difference of buying/selling. But if one of the problems is general visual appearance, a different house may be the only way to scratch that itch if you can find the right one.
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Lee_WSP
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Re: Buying used vs. Upgrading and expanding current home

Post by Lee_WSP »

Living through a renovation is awful. That's about all I have to add.
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Supergrover
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Re: Buying used vs. Upgrading and expanding current home

Post by Supergrover »

When you’re talking about new + upgrades = 970K, could you build new for that amount?
Topic Author
hameshatumkochaha
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Re: Buying used vs. Upgrading and expanding current home

Post by hameshatumkochaha »

Thanks all for the comments. Please keep more coming. Renovation experience being awful is something I did not think of. Such perspectives help! Yes, I need to get quotes. I will.
I did not understand this: "When you’re talking about new + upgrades = 970K, could you build new for that amount?"
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quantAndHold
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Re: Buying used vs. Upgrading and expanding current home

Post by quantAndHold »

dukeblue219 wrote: Tue Nov 30, 2021 6:06 pm Only in America would we refer to a home as "used." I know what you meant, but I've never heard someone call it that before :D
Also, only in America is 2900 sqft 50% too small.

Keep in mind that getting a remodel right now is super expensive, and everything takes a long time, both because of product and labor shortages.
Katietsu
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Re: Buying used vs. Upgrading and expanding current home

Post by Katietsu »

Is there a compelling reason to make any of these moves right now? If you have 4 kids and are now working from home, for instance, I can understand that you might have increased wants. But, otherwise, I would not want to chance any of these changes right now.

A few stories: -A friend who built a home starting almost a year ago has plywood for garage doors. Who knows when the doors will show up. -A neighbor’s 2 year old dishwasher stopped working. Weeks before a repair or installation person could come. -Brother has been waiting about 8 weeks for a fix on a water well. Could have gone to the competitor for faster service but for more than double the cost.

If you decide to move ahead right now, I would opt for the option with the least need for work, parts, and supplies. If you wait and we get back to more normal times, I would probably renovate if the final product would be aesthetically pleasing and not look like an addition.
runner3081
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Re: Buying used vs. Upgrading and expanding current home

Post by runner3081 »

Phoenix is one of the most expensive construction markets right now. Expect very high labor costs in addition to the well known supply issues.
adamthesmythe
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Re: Buying used vs. Upgrading and expanding current home

Post by adamthesmythe »

You have chosen an unfortunate time to make the wife happy, with both whole-house construction and renovation costs high. It's not just a matter of writing the checks, it is finding suitable contractors and waiting for the work to be done.

If you really really have to make a move then buying a house that improves some factors and then waiting to do major renovations is the sensible thing. It also gives you some time to think carefully about what changes you want to make. Designers/ architects help some but don't know what works best for you.

Keep in mind that most houses are actually pretty well designed and it is not easy to make changes that are an overall improvment.

Other thought:

You can't know all the problems with an existing house but neither do you know all the issues with a new house. With a decent inspection I think it's about a wash when it comes to future issues.
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Watty
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Re: Buying used vs. Upgrading and expanding current home

Post by Watty »

hameshatumkochaha wrote: Tue Nov 30, 2021 5:55 pm which go for ~$200/sq ft
You mentioned a lot of square footage numbers but those are next to worthless because so many home price factors are not related to square footage.

For example the cost of the lot, driveway, garage, putting utilities in, kitchen, bathrooms, HVAC systems, plumbing, electrical, patios, decks, and landscaping have very little linkage to the square footage of a house.

If you take a house plan and push the back wall back 20 feet that can add a lot of square footage at a relatively modest cost. If you increase the square footage by 25% there is no way that it will increase the home price by 25%

hameshatumkochaha wrote: Tue Nov 30, 2021 5:55 pm I have cash enough for the downpayment at 20%.
.....

I will be opting for first mortgage (~3%) then I will likely will pay-off a large chunk after selling the current home.
It would be good to start shopping for a mortgage now to see just what your options are. You may not be able to qualify to have two normal mortgages at once. In some markets many homes are selling without any financing contingencies. A seller may opt to sell a house you are bidding on to an all cash buyer if you are in a hot market and your financing plans look weak.

With all the supply change problems and contractors being backlogged if you build a new home or buy a home that needs major remodeling that could easily take 12 to 18 months or even longer. A lot can change and you may not be able to sell your current house as easily as you can now and if you cannot lock in your new interest rate until then there is no telling what it the interest rates will be then.
hameshatumkochaha wrote: Tue Nov 30, 2021 5:55 pm 2. Buy a new home (~$820k) from a builder and upgrade ($150k) and (hopefully) live for a long time (~$230/sq ft)
I assume that you would have the upgrades planned before the construction starts so you are talking about a semi-custom home.

Some things to keep in mind though.

1) Many upgrades will not increase the appraised value much if at all. You may only be able to finance assuming that it will appraise for $850k and you would need to pay for most of the upgrades in addition to the 20% down payment. When you eventually need to sell it the house will likely have cost $970k but be in a neighborhood of $850K houses.

2) Be sure to budget for landscaping. The quoted prices for a newly built home likely includes minimal if any landscaping and it will take years for any trees to grow enough to look decent. That might be a problem for your wife. If you start adding square footage or a pool to an existing house the landscaping will likely also need to be mostly redone. Even if the work is being done in the backyard the construction crew will need to bring in equipment through the front and side yard.

3) There is a risk that when the house is done it might not be what your wife envisioned.
Lookingforanswers
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Re: Buying used vs. Upgrading and expanding current home

Post by Lookingforanswers »

Another thing to keep in mind is you don't want to "over improve" your house relative to the neighborhood.

If you already own the nicest house in your neighborhood, spending more money on it will make it hard for you to ever get back most of what you spend on improvements. On the other the hand, if your house today is one of the smallest/plainest houses on the block, it would make more sense to put money into improvements, as long as you don't overdo it.

You never really want to own the nicest house on the block unless you're planning to never, ever leave.

[I would also echo the sentiment above - "living through a renovation is awful."]
LunarOpal
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Re: Buying used vs. Upgrading and expanding current home

Post by LunarOpal »

dukeblue219 wrote: Tue Nov 30, 2021 6:06 pm Only in America would we refer to a home as "used." I know what you meant, but I've never heard someone call it that before :D
The only people who talk about "used homes" in the US are builders trying to push sales in vinyl villages by associating existing homes with used cars.
runner3081
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Re: Buying used vs. Upgrading and expanding current home

Post by runner3081 »

Lookingforanswers wrote: Tue Nov 30, 2021 8:00 pm [I would also echo the sentiment above - "living through a renovation is awful."]
Even 1.5 week without a kitchen was a nightmare. Can't imagine a whole house remodel. Yuck.

Our neighbor did it right (and expensively). Stayed in an Airbnb a few miles away for 2-months during their remodel.
JS-Elcano
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Re: Buying used vs. Upgrading and expanding current home

Post by JS-Elcano »

Lee_WSP wrote: Tue Nov 30, 2021 6:19 pm Living through a renovation is awful. That's about all I have to add.
I agree. I had the popcorn ceiling removed throught the house with the bedroom being spared to the degree that it could still be used for sleeping. One day I came home after work and just decided to move out. To a hotel. For a few nights.
Topic Author
hameshatumkochaha
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Re: Buying used vs. Upgrading and expanding current home

Post by hameshatumkochaha »

Great inputs guys! THANKS! Much appreciated. Please keep the inputs coming.
- I was certainly looking the other way about the pain we would go through for a fairly long duration with the renovations. Thanks for highlighting!
- Yes, I do feel that making changes might not result in happiness/satisfaction for the long term. Hoping for it though. Don't want to hold sand.
- In our community our 2900 sq ft house is among the largest and was among the most expensive when we bought. Our next door community built in ~2017 has 3600 sq ft houses that are now worth ~$200k more.
- I agree that $/sqft is relative and many items that were listed by <> are not scalable/affected by the area. There indeed are lots of variables. While giving the numbers, I was assuming some items to be fixed for discussion purposes.
- About mortgage shopping: I heard that going to banks / CUs doesn't always result in the best rates but going thru "mortgage brokers" doesn't cost me directly (they get paid by the lenders) and gives me better rate / least monthly bottomline in many cases. Having zero mortgage experience, additional pointers / ideas on this item would be great to get best mortgage shopping. Thanks!
- For the new home $970 bottomline was to include builder's basic home + add-ons / upgrades at their design center + backyard pool etc. Our first home was with Lennar and we did not have to go to the design center; so I loved that. I like lean processes. Wife however dislikes still that lack of customizability Lennar gave, which is a part of her frustration resulting in the exploration phase we are currently into... Every 10th sentence includes her feeling "stuck" in the current home... :(
- Wife seems open to the idea to start renovation a few months later. We will wait at the current home if we see that renovation makes sense financially by getting some quotes now. We will assume that prices will drop a bit. Mike Scott: I agree "You need real quotes on the expansion project to know the local range of costs. "
- Katietsu: We have 2 kids in our 5 bed 3 bath home. WFH means I occupy a house room for office...
- 2900 sq ft being a small home: We grew up in Mumbai, India. My family (parents + 3 boys) lived in a ~550 sq ft home with no issues with the home size. She lived (parents+2girls) in a ~800 sq ft home. Very true, quantandhold, it sounds odd that 2900 sq ft now feels small... If we were in San Francisco, maybe 1000 sq ft would have been ample? Maybe AZ spoiled us...
- "used" home: Good catch. :)

I forgot to mention that our current home has a 5.5kW solar panels we got for $18k which were ~$10k post-rebates. Also, we were among the last ones to get grand-fathered in SRP's older plan. In other words, assuming that we are about broken even on the system now; if we end up living here, our future annual electricity expenses will be $22 per month for 10 months and $200 for each of the two remaining months for the coming 12 years when we don't stay in the grandfathered plan. Our neighbors with ~400 sq ft smaller houses with the same floor plan, we save ~$1k minimum each year.

Again, great insights! Thanks!
stoptothink
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Re: Buying used vs. Upgrading and expanding current home

Post by stoptothink »

runner3081 wrote: Tue Nov 30, 2021 8:38 pm
Lookingforanswers wrote: Tue Nov 30, 2021 8:00 pm [I would also echo the sentiment above - "living through a renovation is awful."]
Even 1.5 week without a kitchen was a nightmare. Can't imagine a whole house remodel. Yuck.

Our neighbor did it right (and expensively). Stayed in an Airbnb a few miles away for 2-months during their remodel.
6yrs ago we moved in with my parents for 3 months as we were going through the process of buying and moving into our home. It coincidentally happened while they were in the middle of a renovation of their entire first floor, including the kitchen. It wasn't the space (we had the entire ~1700sq. ft. basement to ourselves), but having 8 (us 4, my parents, and 2 youngest sisters) and no kitchen for the entire 3 months was an adventure. My parents appreciated that we were there because wife and I did 100% of the demolition and helped a lot with many parts of the renovation. I would never purposely put myself in that situation again.
NYCaviator
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Re: Buying used vs. Upgrading and expanding current home

Post by NYCaviator »

I would be really sure you want all that extra space before you commit. You only have 4 people, and already have 5 bedrooms, so what are you trying to accomplish with all the extra room? Do you have a specific goal in mind like a home theater, massive home office, etc.?

I don't intend to be offensive when I say this, but it sounds like you and your wife aren't sure what you want. Having a "non fancy" downstairs doesn't seem like a great reason to buy a new house when yours is already paid off. You've also toured what's for sale and don't like it.

In terms of buying a new build, that is certainly no guarantee you'll get what you want or that it'll be well built. I know quite a few people who moved into new builds only to find major issues that had to repaired (plumbing, electrical, flooring) because they were thrown together so quickly.

On the other hand, major home renovations are a living nightmare unless you are staying somewhere else for the duration of the work (which isn't usually feasible).

If it were me, I'd slowly improve the house you currently live in and that's already paid off. Don't do it all at once, but start with new floors and paint and go from there. You'd be amazed at how different your house can look just by doing basic cosmetic upgrades. Also realize that you will probably never find the perfect house.
toomanysidehustles
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Re: Buying used vs. Upgrading and expanding current home

Post by toomanysidehustles »

hameshatumkochaha wrote: Tue Nov 30, 2021 5:55 pm

I am sure I am missing some details that you would need to help me best. Please let me know what it is and I will reply/edit.

Thanks!

We just did a major renovation of our primary home (3850 sq/ft, moved a couple of walls, 3.5 bathrooms updated, new kitchen, etc.) and no room was left untouched. We replaced ALL of the windows, doors, honey oak trim, etc.. There was a brief thought of moving to a "new home" neighborhood, but that would be across town in an area which would require more windshield time. Nice (and bigger!) homes, but we would be starting fresh on everything. Just keep that in mind if you like your house and location. We have 2 airbnb's less than a mile from our home so were were back and forth when they were open. We ultimately ended up blocking 4 months in one of the rentals last winter which was super helpful. In the end we had a porta potty in our driveway for 51 weeks. Shortages are prolific in every part of the process (especially plumbing and lighting) so if you go the remodel route I'd suggest looking for "available/in stock now" items.

I'll also add 4500 sq/ft is huge. We have a 17 year old son and 14 year old daughter....there are rooms which we never use so 3850 sq/ft for us is too big.
Last edited by toomanysidehustles on Wed Dec 01, 2021 7:44 am, edited 1 time in total.
mtnlover
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Re: Buying used vs. Upgrading and expanding current home

Post by mtnlover »

It’s hard to tell if you and your wife are unhappy with the space you have, or perhaps just the ordinary builder grade finishes. Perhaps it would be helpful to consult an interior designer to see how the square footage you have might be enhanced from dull to dazzling. New flooring, furniture, finishes, hardware etc can make a huge difference.

Then just add the pool!
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Watty
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Re: Buying used vs. Upgrading and expanding current home

Post by Watty »

In economics there is the concept of "opportunity cost" where when you are considering spending money on something that you look at the cost as being what you would have to give up to buy it, not the dollar value. For example a teenager might have enough money to buy a pizza or got to a movie but not enough for both. That makes the opportunity cost of eating the pizza not being able to see the movie.

It sounds like you are looking at spending the better part of a half a million dollars on upgrading your house when you add in all the transaction costs, likely cost overruns, and then when you get a larger house you will need to furnish and decorate it. The more expensive house will also have a lot higher future costs for things like property taxes, maintenance, and utilities.

You might talk with your wife about just what the opportunity cost for this would be and if she understands the tradeoffs. If you have a high networth the opportunity cost of a larger house might be very low.

We of course do not know your situation so it is hard to tell if spending that much is a big stretch or if it you have a net worth of several million dollars and spending a half a million dollars on a larger house would not be a big deal. If you do have a high net worth it might be best to just buy a nice house that in move in ready(or close to it) and not have to deal with all the issues of building or remodeling. That might not be the best financial choice but if you can afford it there is no sense in going though the remodeling.

You mentioned getting a loan for this. If at all possible I would highly suggest that you pay cash for it since it will be a bit painful to sell investments and write a six figure check. That is a good test to see you really want the house that bad.

I would suspect that you are some sort of high paid tech worker. That is great but you need to keep in mind that tech is boom and bust and that high paying jobs may be harder to get when you are in your 40s and 50s. Companies also come and go and todays hot skills will be dated 10 years from now. Don't count on having a high tech income for long enough to pay off a 30 or even 15 year mortgage.

I worked in Silicon Valley a long time ago and even though the pay was not as crazy back then I saw lots of people get into trouble during recessions when they lost their jobs and few other companies were hiring. Even companies that survived like Apple had lots of lean years where they almost failed and they had lots of layoffs.
worthit
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Re: Buying used vs. Upgrading and expanding current home

Post by worthit »

A contrarian thought.....

1. If this is a home that you see yourself living for at least 10+ years, then I would go in for a new build.

2. Newer homes are much more energy efficient and have a lot of upgrades that you would appreciate compared to older homes.

3. Home buying has a lot of emotional component built in that a lot of people don't acknowledge (e.g. happy wife is a happy life :wink: ). So splurge if you need to because you are going to build a lot of good memories and you will enjoy. Somethings in life just can't be expressed or measured by $$$.

4. If the home is in a desirable area then it will hold off the value.

5. The above points were all the ones I followed and I am glad I did. Of course, all this make sense only if you have money to spend including job security.

My .02.
robphoto
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Re: Buying used vs. Upgrading and expanding current home

Post by robphoto »

I also kind of enjoy the idea of "used" house. Living in New England, the houses in which I've spent the last half century were all built in the first quarter of the 20th century, not including my parents' house, built about 1840.

That said, in a modern "used" house, you've really got to look closely at the mechanical systems, and things like windows and trim, which could rot out in a dozen years (perhaps not that soon in the desert).
stoptothink
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Re: Buying used vs. Upgrading and expanding current home

Post by stoptothink »

toomanysidehustles wrote: Wed Dec 01, 2021 7:36 am
hameshatumkochaha wrote: Tue Nov 30, 2021 5:55 pm

I am sure I am missing some details that you would need to help me best. Please let me know what it is and I will reply/edit.

Thanks!
I'll also add 4500 sq/ft is huge. We have a 17 year old son and 14 year old daughter....there are rooms which we never use so 3850 sq/ft for us is too big.
I don't think we're going to talk OP out of wanting more space, but I might as well share my n=1. Mentioned earlier, we stayed with my parents for 3 months while buying our home 6yrs ago, so there were 8 of us in a ~3700 sq. ft. home with the entire first floor being remodeled. Not having a kitchen was a headache, but nobody ever thought we were cramped otherwise (all living in ~2000 sq. ft.). We were in the basement; since we left 6yrs ago, someone might actually go in the basement once a month.

Has nothing to do with the cost, OP needs to ask themselves if the hassle is worth the benefit. I'm confused as to what the benefit is, but I'm not OP.
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hameshatumkochaha
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Re: Buying used vs. Upgrading and expanding current home

Post by hameshatumkochaha »

I am so thankful for all different perspectives boglehead members provide. THANKS guys! My wife and I read this periodically and discuss. Certainly lots of great points to consider and discuss. Much appreciated!
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Sandtrap
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Re: Buying used vs. Upgrading and expanding current home

Post by Sandtrap »

There’s a vast area around you to shop for an existing home that might more than fit your needs at a good price.

Have you widened your search area?

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