When your family outgrows your home you have three choices:
1) Learn to love living in close quarters
2) Move to a bigger house
3) Make your house bigger
The option you choose often comes down to two factors – how much you love your current neighbourhood, and money.
If you love where you live, staying put and creating more space with extensions or additions is a no-brainer. Why? Because with the recent boom in Sydney property prices, it makes more financial sense to extend or add a second storey than selling up and buying a new house.
Let’s look at some numbers.
Real estate agent fees are typically around the 2.5% mark. On a home at the $1,000,000 median price for Sydney, that’s $25,000 gone.
Stamp duty and associated fees is a shade under $41,000.
Moving house will likely set you back something between $2000-$5000.
Add all the little costs like connection fees for your utilities etc and you’ve spent around $70,000.
Now, let’s look at the figures around adding space to your home. A study by Andrew Crossley, author of Property Investing Made Simple showed that an additional bedroom is worth between $75,000 and $95,000 – this figure comes from comparing average values of 3- and 4-bedroom homes across several randomly selected suburbs around Australia.
And an article in the Sydney Morning Herald in June 2015 noted that 4 bedroom homes in Sydney sell for an average $250,000 more than 3 bedroom homes.
So, let’s compare these two options:
Option 1: Move house
You outlay $70,000 in fees and taxes based on current Sydney median house price of $1M.
Option 2: Extensions or additions to your current home
Your home increases in value by a figure somewhere between $75,000 and $250,000 based on adding one bedroom, or significantly more if you add more bedrooms and/or living space.
Of course this is offset by the building costs but with well-designed and built additions these can be less than the value that has been added to the home.
Should I stay or should I go?
The decision to stay or go comes down to a lot more than mere numbers. Ultimately you’ll decide on your gut feel, your family’s preferences, the suitability of your home to adapt to your needs and countless other factors.
Hopefully this article has shed some light on the financial side of the equation though. We’d love to hear your thoughts – share them by posting a comment below!