The abandoned school

Anyone who has gone through the home buying process eventually faces this decision – purchase a home in need of renovations (and save money) or purchase a more expensive home that’s live-in ready.  Couples who select the renovation route should do so with a blend of caution and realistic expectations in order not to bury one’s love under never ending construction.

Consider this scenario…

A young couple searching for their first family home settles upon two possible houses: a two-year-old home with no renovations needed, or an older home requiring a number of updates within the next year or two. Consider that the older home is $50,000 cheaper, therefore a very tempting choice. While the desire to save $50,000 may be enough incentive to purchase the older home, a deeper look at this choice may tip the scales in favour of the newer home.

Costs in Disguise

If the couple purchases the newer home, the additional $50,000 in mortgage payments equals $225 per month, based on a 25-year mortgage at 2.5% interest rate. Check with:

If the couple purchases the older home, they immediately face renovation expenses that often come with high interest debt payments. Assuming their entire investment was used for the down payment, they would need to borrow funds. The interest rate on $50,000 from an unsecured line of credit is 6-8%. If paying through credit card debt, the interest rate is much higher at 18%; and, the minimum 3% payment required each month equals $1500 per month – a hefty financial burden for most couples.

Another important financial consideration is the energy efficiency of the home. Many older houses are equipped with outdated windows and doors which can add up to $200 more per month in heating costs during winter months, and additional cooling costs in the hot summer period.

Messy House, Messy Marriage

Finances aside, the couple should think about the implications that a renovation can have on their relationship. They may face months of upheaval due to construction that includes dust, mess, scheduling time to meet with tradesmen, and hand-wringing over design decisions that can further hold up the completion of the project. Even the strongest marriages can be tested during a period of home renovation.

There are some conditions that make the decision to purchase a fixer upper more sense. If one partner is a professional tradesman or is naturally handy and has the time available to work steadily on the project, some of the financial and relationship stresses can be alleviated. In this case, the choice to renovate may be the right one – as long as both partners go into the process understanding what lies ahead.

Make the Right Investment

If the thought ongoing debt alongside months of construction mess – and more than a few arguments over design choices – fills a couple with dread, then spending the extra $50,000 up front on a new or freshly updated home is likely the way to go. As always, be sure to review any paperwork documenting renovations completed by previous owners and always ensure a proper home inspection is done prior to purchase.