To sell or renovate in Toronto’s heated housing market
This blog is part of the series – Planning your home renovation.
Should you sell your home or stay and renovate it? Many Toronto homeowners who desire a change are faced with this choice. With today’s heated market, where the average Toronto home as of April has already appreciated by 31.7 percent over last year, many are opting to improve what they already have.
While it’s great to be a seller in Toronto, buying in the same market is not so affordable.
For some, moving to another location in the city is imperative – whether to be closer to work or family, or to find a more suitable neighbourhood. For those who want to move due to the size and feel of their home, renovating offers a compelling financial opportunity.
First, the costs of buying and selling a house alone such as land transfer fees, other closing costs, and lawyer’s fees can amount to tens of thousands of dollars. Compound this by the fact that the new home you purchase will likely need to be renovated. This is not unusual. We renovate many homes that were recently purchased.
Second, by not moving, you can leverage the value of your house through a home equity loan, or a mortgage refinance to renovate it. These days, where interest is likely the lowest in our lifetimes, borrowing to improve your current home will likely offer a better return on investment (upwards of 8 percent) as opposed to cashing out and purchasing in an overheated market.
If the sole reason for moving is to add or to improve your space, then renovating can be the better financial option. It’s best to speak with your mortgage broker to understand what your leverage position is on your current property, and what options you have available. Keep in mind that a bank appraiser’s assessment is largely based on comparables from MLS, so having an idea of what other homes of similar stature sold for in your area is a helpful start to understanding your money.
Before visiting your broker or financial institution, we encourage you to understand what your financial input will need to be for the scope of work that you envision. By consulting with your home renovator, you’ll be able to obtain a “gut-check” on the overall costs involved which is helpful information when making this very expensive decision. Costs are typically broken down into in-house labour, building materials, and sub-contractors (plumber’s, electricians, etc.). This breakdown is fairly standard for most home renovation firms in Toronto.
Once you understand the numbers from your home renovation firm, you can compare this with the lender’s feedback to see if the scope of your dream renovation matches what you can currently afford. If not, you may consider renovating in stages or giving yourself more time to save the additional funds required. A home renovator can assist you in determining next steps forward.
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