Rebuild house or move? Advice needed

Submitted by ScaryStatistician t3_10pek4q in personalfinance

Hi all,

Looking for some honest feedback.

Our current situation - we live in a HCOL suburb of Boston. Very residential neighborhood, but the school district for the town isn’t rated the best (A on Niche as opposed to A+). We bought our house for 700k and currently per Redfin and other agents, is currently worth 900k. The problem is that the house is small and we’re outgrowing it very fast. We also don’t have a garage, which gets brutal in the winter.

Our maximum budget for a new house is 1.3M, but in a town with a better school district that would find us an older house that needs a lot of work, or in a less residential/desirable part of town, or no garage, or one similarly small. A house in the town we want with the amenities we’d like will cost at least 1.6M, which is out of our budget.

Now our proposed idea - there are many houses in our neighborhood similar to ours that were completely razed and rebuilt to larger, more modern homes with two car garages; 3 on our street in the past year actually. Houses that were sold for 700k were rebuilt and sold for 1.9-2.2M. We’re wondering if it makes sense to move into an apartment or something for a year and rebuild our current house. I contacted a couple of builders who estimate 500k for the rebuild, which falls within our budget of 1.3M (700 + 500 + 100 for rent/unexpected expenses). Our son is a year old and won’t need to join a public school system for at least 3-4 more years and by the time he’s ready we’ll have a house worth 2M (plus whatever appreciation has happened in 3-4 years) in our current town which we can sell to be able to afford a nicer house in one of the towns with better school districts.

I understand it’s a huge undertaking since we’ll have to pay rent while paying for a mortgage, not to mention the stress of dealing with builders and contractors. Our thought is even if we do buy a house for 1.3M today, there’s no way it’ll appreciate to 2M in 3-4 years, but with the proposed approach, our 1.3M investment should end up in 2M.

Another factor is our current mortgage is locked in at 3.2%. If we do sell and buy a new home, we’ll need a new mortgage for a much larger amount at around 6%. If we take a construction loan for the rebuild that will end up in a mortgage when completed, it would be for 500k at 6%, as opposed to nearly 1M at 6%.

I wanted to know what you guys think.

Please be as brutally honest as possible.

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Comments

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_GrilledAsparagus_ t1_j6k26mb wrote

A to A+ seems like a pretty modest change considering the undertaking. That said that could be a more significant difference then the rating eludes to, I’m not too familiar with that rating system.

Are you tied to the current general area due to commute, family, just pure preference?

The plan to overhaul your house sounds pretty good in practice but there are so many factors that would go into pulling off a maneuver of that scale, combined with the current economic uncertainty and it just doesn’t feel like it’s worth floating that amount of risk for what honestly has such an uncertain degree of payoff, and if the wrong event(s) take place, could leave you just breaking even or in a financial hole with huge mess to sort out.

I ask my initial question about what ties you to that area, because you might be able to get something that checks all your boxes, is in your budget, located in beautiful town and with a A+ school system if your able to distance yourself a bit more from the city, just say 30-35min opens up a lot of options.

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ScaryStatistician OP t1_j6ndnht wrote

We're partial to the area because of the commute (easy access to public transport), neighborhood and that it's generally a really nice area. We did consider moving to one of the towns further away that does have A+ districts but they were too far from our friends/family for our liking.

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RomulaFour t1_j6k85qu wrote

The biggest concern to me would be the near certainty that that estimate of $500,000 is likely to blow up to 600,000 or 800,000 with just a few little 'discoveries' found while doing the work.

Spend more time house hunting and figure out needs versus wants. Do a deeper dive into your local schools as well. See what modifications to your house can be done with you staying in the house that may make it worth staying. Time will tell.

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ScaryStatistician OP t1_j6ndpi3 wrote

>Spend more time house hunting and figure out needs versus wants.

Admittedly we've only been searching for a couple of months, but the houses in the districts we do want with the amenities we're looking for are well over our budget. There are maybe 4 or 5 towns that we've got our eyes on, factoring school districts and ease of public transport into the city and due to these very factors, homes in these towns are very very expensive.

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firefly20200 t1_j6jzp2p wrote

I'll just add that I would add between 25% and 50% to whatever number they give you and probably 6 months extra time. Supply chain still is kinda weird and while inflation is cooling off, things have really shot up in the last year and I suspect we'll still see pretty big increases for awhile...

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ScaryStatistician OP t1_j6ndrv5 wrote

That's a good point. We factored in 15% overage from their estimate, but in reality it's sure to be more than that.

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Cheaper2000 t1_j6k14df wrote

What about the ratings make you want to move and give up the interest rate? Or are there other reasons and you’re trying to justify. A vs. A+ is negligible and likely to change in the next 3-4 years and certainly by the time your child graduates.

I have no clue what they use to evaluate their specific categories, but in general public school districts are going to trail administration and sports. If I had a newborn I’d rather live in a district with A+ admin and sports and a C overall rating than an A+ rating with C admin and sports (likely not possible but you get the point).

Diversity obviously isn’t going to trail any of the other categories so read into that category independently.

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RamblerUsa t1_j6k255r wrote

My parent's home, where I grew up on the South Shore of Boston was $12K in early 1950s. Sold for $300K in mid-00s. Later torn down for a McMansion.

None of the things they did actually increased the value; updated kitchen and bath, single car garage, detached shed, etc. It was always proximity to Boston and T.

Per your question, I would be wondering if you're buying into a bubble and any delay would be to your advantage. Similarly, although there does appear to be minor slowdown in interest rate hikes, but these are truly unpredictable until a lot of what spooks the market gets settled.

Would it be possible to add a garage or carport without needing a rebuild? That may buy you a year or two to revisit the question.

As for schools, no idea what 'A niche' means, but lobbying for new taxes for schools usually goes over pretty well in Massachusetts. Also, money saved by deferring the rebuild could be put towards an A+ private school.

High rates can be bought down if you opt for either of your proposed options. My 14% mortgage in 1980 later became 5% seven years later.

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ScaryStatistician OP t1_j6neerb wrote

>Would it be possible to add a garage or carport without needing a rebuild?

Definitely, but the core problem is that we've already run out of space here.

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ALandWarInAsia t1_j6kcj06 wrote

The construction cost seems low if you are talking about addition plus remodel plus adding a garage etc.

Your current house is worth $900k. You think you can put up about $600k in the remodel well that puts you as $1.5M and you think a $1.6M house is unaffordable.

It's hard to compare your own project to rennovations/flips in your area. They are likely making part of their profit by doing the work, where you need to hire contractors.

You might want to look into the financing side more too. How do you intend to get the capital for the renovation? I don't think a HELOC is an option since they will cap at 85% of your equity in the property.

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ScaryStatistician OP t1_j6negdo wrote

>You think you can put up about $600k in the remodel well that puts you as $1.5M and you think a $1.6M house is unaffordable.

Our math was 700k (what we bought the house for) + 600k remodel = 1.3M, as that's what we'll be paying the mortgage on.
As for financing, I talked to our mortgage bank who was ready to provide a construction loan for 600k.

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ALandWarInAsia t1_j6p2ncj wrote

Yeah I totally get your line of thinking regarding $700k vs $900k but it's ignoring your equity that you could cash out now. My answer did ignore the cost of selling your house, which is significant though.

I'm not totally familiar with construction loans. Some are due at the end of construction (i.e., you need to refinance) and some convert to a mortgage. Either way, you are going to have a higher effective mortgage rate in the end.

It's a super hard decision. But I wouldn't discount the time/headaches/cost over runs that come with renovating. It's hard to put a price on, but it can be a really high workload for you.

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