Expert: Connie Wildasinn-Broker,GRI,Realtor® - 2/10/2012

Question
QUESTION: I purchased my first home about one year ago. It is a 2 bedroom, 1 bath single family home in a Los Angeles suburb. My wife and I would like to add a second bathroom, not just for our comfort, but also for higher potential resale value. We have been approved for a 203k rehab loan to add the second bathroom and a few additional improvements to the home (new kitchen countertops, new hot water heater, fence repair). This will set us back about $30K on top of our current loan balance of $265K.

I just saw a house in move-in condition just up the street that is a 3+2 listed at $290K. My question really boils down to this: should we do the addition of the second bathroom and other improvements or not? Should we just leave the house as-is and wait for the market to come back around a bit more until we can sell? Or do we sell our home now and try to buy something that already has the number of bedrooms and baths we want? I am really torn on what to do. Obviously, it is difficult to predict what the real estate market will look like in the coming years, but we would be staying in our current home no longer than 5 years from now.

What do you think our best bet is?

ANSWER: Hi Michael...

You sound like you are in a quandary... It really boils down to how long you plan to live in your home... I never advocate adding to the footprint as no only does this entail the city and permits and code... it really increases the cost dramatically.

Yes the bath will add value when you sell... do you really need the bath room NOW? only you can answer...

Since you are doing a loan for that $30 it really costs you much more than that as you now have interest to pay back over long extended time line...

Should you sell... keep in mind there are costs involved aprox 7.1% on the sellers side to include commissions, escrow, title, recording fees, etc, not to count any buyer concessions they may want to close the deal... so it really depends on what REAL value you home is worth today on the open market.

Then buying... do you have the credit? enough to pay those closing fees again or will you ask that seller to assist you or have to roll it into that loan?????

All those must be address and reviewed... sit with your lender of choice, a good realtor.. your actually just up the road from me... and make a pro's and con's sheet ... see where the family stands...

From a strictly investment standpoint the house will rise and fall with the market, no matter what you do past keeping up the maintenance on it... today you do granite and tomorrow every buyer wants cement... who knows what they will want in 2, 3 10 years...

---------- FOLLOW-UP ----------

QUESTION: Thank-you for your thoughts Connie. After reading your response, I realize that we would do not have enough equity in our home yet to make selling a consideration. So that leaves us with two options: do the addition and enjoy it until we sell (but have a higher mortgage balance to pay off), or leave the house as-is and wait for an upturn in the market to sell. Our main point is we don't want to be in this home past 5 years from now, so we don't want to be underwater and stuck if we can help it.

My thinking was that while we don't NEED the additional bathroom, it will greatly increase our enjoyment of the home, and I was hoping it would increase the pool of potential buyers when it comes to sell. Any more thoughts?

Answer
Hi Michael,

The eventual price of the home - standing with equity or 'underwater' will all be determined at the time you sell....

Will that bath increase the 'pool'...depends when you sell ...

What I can tell you is when the market turns around and it will... things will be in a different mind set than they are today...

Back in 2003 till the crash - I could sell with the house under the freeway, next to the airport, in need of repairs and get multiple offers over asking of market value to boot!  It has happen time and again, because we all forget...

So play smart... Stay within  your means... think twice before spending... if you can live without that bath, may be better for the family in the long run, if not then do what you have to do to have a happy home life, but keep in mind, you do this for you.... NOT the resale ... you can look at all the granite counters out in the market place, and they are now selling as a foreclosure... those homeowners also thought they would get their money out... not always so... live wisely...


Get multiple bids on the work also... and add 10% to your bottom line... it always costs more than you thought it would to do a remodel