As an architect who specializes in major remodels of older homes in Seattle, I often meet potential clients who ask the same questions: Should we add a second story? Should we build an addition into our backyard? Should we tear down and start over? Or, should we fix this and flip it?
Each house and owner is unique, but there are some basic rules of thumb for making this important decision.
Rule of Thumb #1: The Big Picture
If you are uncertain about living in this house for at least 5-7 years after the major remodel is completed, then your efforts should focus on wide market appeal instead of what is uniquely important to your family’s lifestyle. The concept of owning the same home for 30 years and having the same job, or career for that matter, is a thing of the past. Some project types have very high, immediate return on investment (ROI) ratios, such as kitchen and bathroom remodels. According to Remodeling Magazine's "Cost vs. Value Report, 2008-09", a mid-upscale kitchen remodel in the Pacific Northwest averages between $62,997 and $119,361 Construction Cost with a 81.9%-87.3% ROI, and the same quality bathroom remodel in that region averages between $18,452 and $58,317 with a 79.5%-86.7% ROI.
Rule of Thumb #2: “Location, Location, Location"
Counting on your neighborhood to “transition” in 5-7 years is a risky move and should be considered a gamble. If your intent is to use the equity to move to a nicer neighborhood, then make choices that are appropriate to this house in thisneighborhood. Save the splurges for the house that you intend to keep in a neighborhood that is certain to support the investment.
Rule of Thumb #3: If it’s broken, fix it.
I once interviewed with homeowners whose house was full of things that needed to be fixed, including an unfinished basement remodel. The house was already a 4 bedroom, 2 bathroom house with a 1-car garage; they were contemplating a second-story addition to include 3 more bedrooms and 2 more baths. When complete, their house would have been the biggest on the block, and their resources would also have been completely exhausted.
Sometimes fixing the space you already own has a greater potential return on investment than trying to outweigh what is old and broken with new square footage.
Rule of Thumb #4: Consider leaving it alone.
Major remodels should result in major changes. Unless this is your last home, don’t spend money changing all the cabinetry in the house simply because you prefer maple over walnut (or vice versa). After all, you bought the house with those cabinets in it, and the next person who shares your tastes will probably still buy the house…as long as they believe the house is a good value.
Rule of Thumb #5: The more phases, the more the project’s cost.
Remodeling in phases costs more. It is always less expensive to have skilled labor come once to your house to do all of the work rather than to have them come three times to complete a third of the work each time. This is true even without considering the inflated costs of labor and materials. Homeowners are often surprised to find out that the second phase of work may cost as much as the projected total cost only two years ago for all phases. Planning to complete work in phases should only be considered if you either a) intend to stay in the house long enough to undertake all of the phases of work or b) execute the phases which result in the greatest return on investmentfirst.
Rule of Thumb #6: Adding a second story = whole-house remodel.
The prime candidates for second story additions are homes in older, dense, and highly desirable neighborhoods. Because these homes are also older, they usually need upgraded plumbing (often including new water and sewer mains), wiring, windows (repair if not replacement), and mechanical systems. They often have significant deferred maintenance items, leaving them in need of exterior (and sometimes interior) stripping and re-painting, re-roofing, rot repair, etc. Not very many homeowners are willing to make such a major investment and still park on a cracked driveway or have a house with a mismatched roof. All of these items add up to more than you’d imagine for the amount of square footage you plan to add.
Depending on your local building department’s requirements, a major remodel may require that the entire house be brought up to current building code. Different jurisdictions have different definitions of “major remodel”, either based on a dollar amount threshold or a ratio of the current value of the house to the Construction Cost. It isn't safe to assume that because you don’t intend to remodel a portion of the existing house that you won't be required to.
Rule of Thumb #7: Consider the yard as another room to remodel.
If your addition creates a strange roof shape, difficult drainage condition, or restricts visual or physical access to the yard, proceed with caution…or not at all. The return on investment for an extra room may be more than outweighed by the loss of the relationship, or potential relationship, of indoors to outdoors.
The porch and landscaping make rooms for outdoor living.
Rule of Thumb #8: Crunch the numbers.
Add what the house would currently sell for, less what you owe, plus what you anticipate spending. Then, go shopping. If your house is currently worth $700K, you owe $350K, and you are contemplating a $600K major remodel, you should have a look at the housing inventory that is up to 120% of $1M (which is $700K-$350K+650K). You may be shocked to find that there is a home that already meets or exceeds your needs in that price range, or one that is much, much closer to the finish line.
We need “starter homes” in our close-to-downtown neighborhoods, and choosing to sell your home to someone who is just getting started is indeed a very “green” choice – not to mention much less stressful than undertaking a major remodel.
Rule of Thumb #9: Hire a talented Contractor, and get out of the way.
Most homeowners have full-time jobs and don’t have construction backgrounds. Despite your deepest wishes to keep an eye on things and to put in some sweat equity to save money, you shouldn’t expect to live in the house while it is under construction or use your own labor to reduce costs. If you are counting on either of those to make the project possible, you are probably taking on more than you should.
A good contractor makes the dream a reality.
Rule of Thumb #10: Hire an Architect (hopefully me).
As an architect who specializes in residential projects, I am able to help you do much more than just plan your ideal home. I ask the important questions and consider both the emotional and financial effects of the answers. The earlier you involve me in the decision-making process, the more you stand to gain - even as early as shopping for a home. I can help you compare the pros and cons of candidates, including the home you already own, to determine which one offers the greatest potential.