Author Topic: contemplating a home addition- how to think about it  (Read 1755 times)

affordablehousing

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contemplating a home addition- how to think about it
« on: May 07, 2019, 01:21:52 PM »
Forum members, we're thinking about renovating and adding on to our home. In our market, we're being quoted prices of around $475 psf for the addition, with the average house for sale at around $600 psf. That said, we are proposing adding 400 sf to the home, changing it from a 2 bedroom 2 bath to a 3 bedroom 3 bath home. I doubt home value scales exactly linearly with size. I'm hoping those on the forum who have pursued expanding their home could comment on whether it felt like a not unreasonable expenditure. Note that I know this is not the best investment, but it would make our home life significantly better and we'd like to stay in our house for a long time. We also can't afford a larger home and see this as a potential way to live here "forever". Thanks in advance.

nereo

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Re: contemplating a home addition- how to think about it
« Reply #1 on: May 07, 2019, 02:44:26 PM »
Forum members, we're thinking about renovating and adding on to our home. In our market, we're being quoted prices of around $475 psf for the addition, with the average house for sale at around $600 psf. That said, we are proposing adding 400 sf to the home, changing it from a 2 bedroom 2 bath to a 3 bedroom 3 bath home. I doubt home value scales exactly linearly with size. I'm hoping those on the forum who have pursued expanding their home could comment on whether it felt like a not unreasonable expenditure. Note that I know this is not the best investment, but it would make our home life significantly better and we'd like to stay in our house for a long time. We also can't afford a larger home and see this as a potential way to live here "forever". Thanks in advance.

When planning an addition, people often confound the added value to them with an increased home appraisal value. Often people get tricked into focusing on how much a particular renovation will add to their appraisal and conclude that it won't cost very much money (despite spending 5 figures on the project). You'll hear people say things like "But you can recoup 90% of your kitchen remodel in increased home equity!" - and conclude they can spend far more than they should. Rarely are the outcomes (returns) quite so rosy unless you go into a renovation specifically intending to sell within a few years. Any renovation you do now will be worth far less in 10+ years as styles change and wear-and-tear take their toll.

Unless it is your intention to sell this home, changes in the appraisal value (i.e. what your home is "worth") is less important, and can even work against you with increased taxes. Given that you're talking about this being your "forever" home (or at least someplace you want to stay for many, many years) your primary focus should be on how it adds value to YOUR life, which is both very important and much harder to measure. 

The first question is simple but unappealing: 
how much can you realistically afford to spend?  If your budget is already pretty tight, well that gives you your answer.  If you have a surplus of cash on hand each month and have otherwise made it through the first few steps of the investment order you can set a maximum amount you are comfortable spending and move onto step two -

what home improvement(s) will add value to your life?
  Beware the trap of thinking more space = more happiness.  Poorly designed large spaces tend to lose to very carefully considered smaller spaces.  As examples, a smaller bedroom with a walk-in closet and built-in storage can be much more useful than an enormous 20' x 20' bedroom where most of the space is unused open floor. Renovating your existing baths might make more sense with how you live than adding a third bathroom if that's only occasionally used (and used only by the occasional guest).  Only after you work out these details would I worry about question three:

How will this change my home's appraisal value.  Its not that this isn't important - home equity can come in very useful down the road - but if you have no plans on selling this is the least important question to address.

AMandM

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Re: contemplating a home addition- how to think about it
« Reply #2 on: May 07, 2019, 05:54:47 PM »
We didn't add on, but we converted a garage into living space. It cost way less than a new addition, of course. It was a very, very good decision for us: it added about 225 square feet of space with a large window, so it increased the natural light in the adjacent room as well. It gave us a room big enough for the kids to do school without getting in each others' way (we homeschool), and where we could leave projects out if we paused work on them. Later, we outgrew the table space in our kitchen and the new room became the dining room. It made a huge difference in how well the house worked for us.

What made the expense worthwhile for us was careful planning. We spent over a year discussing what we wanted, why we wanted it, and whether those desires could be accomplished some other way. Also, we discussed what we didn't want, and that was a factor in keeping costs down; for instance, many houses in our neighbourhood had installed bay windows, but I knew the extra sill space would just be a magnet for clutter, so we chose a plain window. We installed commercial vinyl tile ("Just like the floor in Petsmart!" said our kids) because it was easy to clean.

So this is a plug for giving lots of attention to nereo's second question.

FIREstache

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Re: contemplating a home addition- how to think about it
« Reply #3 on: May 07, 2019, 06:33:53 PM »
Make sure that permits are pulled for all of the work where required and that all permits are closed out.  That can come back to haunt you otherwise.

calimom

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Re: contemplating a home addition- how to think about it
« Reply #4 on: May 07, 2019, 06:42:07 PM »
How big is your family? Age and gender of children? A growing family can get tight in a 2 bedroom, so it's easy to see how such an addition could add quality of life now and a better resale down the road.

I moved with my 3 kids into a 3/2 ranch house some years ago. I shared the MBR with my then baby daughter and the 2 older ones had their own rooms. As the baby (who's now 12!) aged into a big girl bed, I tried to think of various options. Because of the age spread of my offspring, I didn't think it was fair for my teenage daughter to share a room with her younger sister, and my son with the toddler didn't seem like a good solution. A garage conversion was out of the question as I was using the garage for my small business at that point.

Because I am on country property with a septic, getting approval for a traditional bedroom addition would have been difficult. A permit was granted for an "annex" to the MBR so I designed a super-simple 12'X12" room that connects to the main bedroom accessed by French double doors which open IN to the MBR. Another set of double doors open OUT to a flagstone patio I created that connects to the wooden deck on the other side of the house. A DIY fountain provides wonderful white noise during the warm months. Bamboo flooring - purchased wholesale - was installed, and during this time the ratty carpet was pulled up in all rooms, creating a warm cohesive look. The MBR became my youngest daughter's room/slash guest room with the attached bath. The big closet was shared; the annex is not allowed a closet and there's no room for one in any case. There's just room for a queen sized bed, 2 small tables and a chair. This is still my bedroom and I love it.

It was all paid for in cash, no additional loan. Very much agree with Nereo about debt and investment order. In your case I'd run some numbers and get estimates. Bathrooms can get expensive pretty fast. What would the cost differences/happiness factor be both with and without adding a third bathroom?

Linea_Norway

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Re: contemplating a home addition- how to think about it
« Reply #5 on: May 08, 2019, 01:31:19 AM »
Why do you Americans need so many bathrooms? One for each bedroom?

We in Europe have just in general 1 or 2 bathrooms per home. One is inconvenient, but two is manageable for most families. More bathrooms is just an enormous hassle to keep clean.

If you need an extra room, why not just build an extra bedroom and skip the extra bathroom? Bathrooms are expensive. Just a room should be much cheaper.

affordablehousing

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Re: contemplating a home addition- how to think about it
« Reply #6 on: May 08, 2019, 11:30:52 AM »
Thanks all I really appreciate the replies. We have saved for this and are fortunate to have the cash available without borrowing. It shouldn't impact our savings beyond adding a couple thousand to our property taxes a year, which is significant but worth it for the improvement in the way our home works for us. It does delay us acquiring another investment property, but if we're fortunate enough to expand our family, the project would go from "really nice to do" to "super necessary" and I rather us work on it before it becomes urgent. Our architect has spent a lot of time understanding how we want the house to work and is indeed making smaller useful spaces for us. The project incorporates a mixture of repairing previous damage to the home from water, updating the kitchen to modern sensibilities and adding a bathroom to what would become a new level. That is a needless luxury I agree but it would be on the new floor with a new bedroom and it is somewhat a concession to market expectations of the "master suite." 

I think I needed some reassurance about how to think about whether we are overbuilding for our neighborhood. We aren't planning to extract any value from the house, just not wanting to be too shocked by how "value-wise" nonsensical our renovation plans are.

Laura33

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Re: contemplating a home addition- how to think about it
« Reply #7 on: May 08, 2019, 12:03:19 PM »
I think I needed some reassurance about how to think about whether we are overbuilding for our neighborhood. We aren't planning to extract any value from the house, just not wanting to be too shocked by how "value-wise" nonsensical our renovation plans are.

I think of all renovations as either a maintenance or a consumption good, not as an investment.  Repairing damage is mandatory maintenance; a third bedroom/bathroom is a consumption good.  Unless you are a professional property flipper or real estate appraiser, you have little to no clue how your improvements will affect the value of the house.  And the longer you plan to live in the house, the less relevant the question is anyway, because you won't be selling to cash in any additional equity until your "improvements" are way out of style and need to be re-improved by the next buyer. 

From that perspective, the only reason the finances would matter would be if you can't afford it/if renovations would get in the way of higher financial priorities; or on the other hand if your addition is sufficient to allow you to stay put instead of upgrading to an even bigger/more expensive house.

Looking at your project as a consumption good resolves the "overimproved for the neighborhood" issue entirely.  If you're doing it just for your own enjoyment, and you can afford it, what does it matter how much your heirs get when they sell it?

DadJokes

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Re: contemplating a home addition- how to think about it
« Reply #8 on: May 08, 2019, 12:33:02 PM »
We actually just scrapped plans to spend $10k building a covered back porch because I didn't value the addition enough to justify spending that money instead of investing it. If your house is or is going to be cramped and an addition will remedy that issue while costing less than the net cost of selling your current home and buying a new one (along with the costs and hassle of moving), then that is the better option out of those two choices. As for whether the money would be better served being invested or on the addition, you have to ask yourself how inconvenient living in a two bedroom home would be. If it's so inconvenient that it's unbearable, then you have your answer.

 

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