Remodeling is popular — but moving might be cheaper

Moving is stressful, but so is living on-site during a remodel. If you’re ready to upgrade your living space but hesitant about today’s sky-high home prices and mortgage rates, you’re likely stuck with a big decision: Should you buy a new place or improve the one you have?

There’s no easy answer since you’ll have to crunch the numbers and consider many factors before making a choice. But weighing the costs and benefits can help you make an informed decision that you won’t regret. 

Here are a few questions to ask yourself before taking the next step. 

Consider your budget

“The single most important factor that should help a homeowner in deciding between moving and remodeling is the cost of both activities,” Nicholas Irwin, research director at Lied Center for Real Estate and associate professor of economics at UNLV, said in an email. “Not only is it expensive to move (movers, packing, etc.), but you also need to consider the cost of the new home (difference in mortgage payments over a future time period) versus the cost of the loan/money used in the remodel.”

With the current high interest rate environment, this means the difference in mortgage payments can be pretty steep compared to a few years ago. “We’re talking upwards of $1,000 more a month in interest payments,” Irwin said. 

Renovating may not always have as high of an upfront cost as buying a new home, but it’s still not cheap. According to Angi, a kitchen remodel alone can cost anywhere from $14,592 to $41,533, depending on the scope of the project, and major renovations can easily go into six figures.

Will renovations actually add value?

Not all renovations will boost your home’s value or provide much of a return on investment. “Remodeling can add value, but only if it aligns with what homes in the area are worth,” Chris Heller, president of Movoto Real Estate, said. “If you spend too much upgrading a property beyond what’s typical for the neighborhood, you may not get that money back when you sell.” 

He suggests considering whether you’re remodeling for resale value or personal comfort. If a remodel is about updating an older home to match modern standards, it usually has a solid return on investment since buyers are willing to pay a premium for move-in-ready homes with updated kitchens, bathrooms and functional layouts. 

“But if your remodel is about adding random luxury features that don’t fit the surrounding neighborhood, it may not pay off in the long run,” he said. In those cases, he believes it’s better to buy a newer home that already has those features rather than invest in costly upgrades that may not hold their value.

According to Angi, these are the renovations that offer the biggest bang for your buck if you’re remodeling with hopes of increasing your home’s value. 

• Roofing: 57% Return on Investment
• HVAC conversion: 66% ROI
• Front window replacement: 63-67% ROI
• Small bathroom remodel: 73% ROI
• New or renovated deck: 62-83% ROI
• Small kitchen remodel: 96% ROI
• Siding: 153% ROI
• Entry door replacement: 188% ROI
• Garage door replacement: 194% ROI

What’s the market like?

Timing matters. If home prices are soaring and there’s stiff competition for properties, staying put and renovating might be the way to go. 

According to Leo Peak, a real estate agent at Peak Family Real Estate Group, many homeowners are currently feeling the "golden handcuffs" effect of being locked into their homes by historically low mortgage rates. “We’re noticing that nowadays, people would rather live in an outdated home with a 3% rate than take on a 7% rate for a move-in ready home,” he said. “With rates high and inventory low, remodeling is currently the more appealing option for many homeowners.” 

So, if you locked in a super-low mortgage rate a few years ago, trading that for a new, higher-rate loan might not be worth it. But if rates drop in the future, buying could make more financial sense then. 

Do you like your neighborhood?

Money aside, you’ll also want to think about the emotional connection you have to your house. For example, if you love where you live, have great neighbors or are attached to your home, renovating may be the better choice.

Of course, if you’re able to find a new home in the same area, the transition may be easier. But if moving means uprooting your entire life — switching your kids’ schools, leaving behind a supportive community and dealing with the stress of selling — then ask yourself if you’re emotionally ready for that change. 

The hidden costs of remodeling

If you’re only thinking about doing small projects around the house, renovations may be cheaper than buying a new home. Still, it might not be as affordable and simple as you think. 

Unexpected costs, delays and dealing with contractors can be a lot to handle. If you’re living in the home while renovations are happening, you’ll have to deal with weeks (or months) of dust and noise. And if you’re taking out a loan to finance the renovation, you’ll also have to factor in interest rates, closing costs and other loan fees.

Depending on the renovation project you want to do, you may need city approval, which can be time-consuming and add to your costs. Plus, if you fail to get the necessary permits, you could face legal and financial consequences, such as hefty fines or having to redo work that wasn’t permitted.

When is moving the better choice?

If your current home doesn’t have the potential to meet your needs, even with renovations, it might be time to move on. 

“If you’re short on space, need a different floor plan or want to be in a different location, no amount of remodeling will solve those issues,” Heller said. “In this case, moving may be the better option if the home is limiting your lifestyle."

Moving may also make more financial sense if the renovation costs significantly outweigh the potential increase in your home’s value. That said, if you love your neighborhood and don’t mind investing in upgrades that enhance your living experience — and not necessarily the home’s resale value — renovating can still be worth it. 

So, what’s the verdict?

There’s no one-size-fits-all answer, but here’s a simple way to think about it:

• If your home has good bones and renovations will truly solve your issues, upgrading your current space might be the best move.
• If you’re currently locked in a low mortgage rate, selling and buying a new home at today's higher rates could mean much higher monthly payments. In this case, you may want to stay put and invest in renovations instead. 
• If your home can’t be renovated in a way that meets your needs (or if market conditions make selling attractive), buying a new place could be the better long-term decision.

Whatever you decide, make sure you’re thinking about both the financial and lifestyle implications. Run the numbers, consider your future plans and go with the choice that makes the most sense for you.