Addition in jeopardy

[dr.girlfriend]

Sorry this is so long, it's hard to know what to leave out.

To recap, we have a 2-bedroom, 1.5-bath Cape in a suburban neighborhood of very similar houses, except most of the houses have their yard in the back and have a two-story addition in the back making them 3-bedrooms, whereas we are sideways on a corner lot and have a one-story living room addition on the side. Some houses in this area have no garage, others have detached garages, others have a small attached garage. Our school district is great, we are close to an adorable downtown, and we really like it here. We have jerk across-the-street neighbors, but we are mostly live-and-live at this point with them, and have several other neighbors that we really like, including our closest neighbors. Stuff rarely goes up for sale here and when it does it sells very quickly. Nonetheless, we paid $300k for the house, and that's about what the 3-bedroom houses go for...maybe more recent sales are closer to $350k. We probably overpaid because I was 8 months pregnant, we had been looking for awhile, and we really wanted to live here.  We moved in 2008, right when the bubble was bursting but prices hadn't fully dropped.

We had hoped to knock down our garage and add a really nice master bedroom / master bathroom / laundry suite. It would be *really* nice -- king bed, two-vanity bathroom, extra fridge in laundry/mudroom, small loft area for storage in bedroom. It's ideal that the bedroom and laundry be on the ground floor as we both have health problems that particularly restrict lifting and make stairs problematic at times. If we make this improvement the plan would be to age in this house. We are in our mid-40's, so we would have another 20-40 years here if luck is on our side. Our son is in 4th grade, and will transition to middle school in 5th grade, which might open up the area in which we are looking, but would mean whatever we get would be further from downtown. Our jobs are very stable.

The architect and contractor both thought we could do the addition for $125k. It would definitely be over-improving for the neighborhood, but we were okay with that. As we've worked on drawing up plans, taking out two giant trees that needed to be removed regardless, etc., it's been at least 8 months and I've simultaneously been looking at home listings. NOTHING has come up for sale under $500k that we would like better than our "improved" house. And having a ground-floor bedroom suite is basically impossible around here, bedrooms are always upstairs. Which, we could probably live with if laundry was upstairs too, but it's not ideal.

Now that the plans are close to final, the contractor's estimate is actually at $185k for everything we want. The architect and contractor came up with a "watered-down" plan that was $165k, but that was not really something that we would want. We were prepared to pay for the $125k in mostly cash; we would need a HELOC to go so far over that.

We can afford it. Our gross combined salary is about $250k, which we're still getting used to because that was the result of a recent jump from around $200k. We refi'd the original mortgage to a 15-year in 2012 at 2.5%, we're paying an extra payment a year so it should be paid off by 2025-ish. This area has low taxes, so it's a good place to be when the mortgage is paid off. We fully fund retirement, etc. DS has a 529 from my parents, but I am also probably a few months away from a faculty appointment that would get him free tuition at my affiliated university, or 40% of that tuition (currently more than $60k a year) elsewhere.

DH wants to go for it, and I'm on the fence. We are both homebodies, and love our current house. We've redone our kitchen, which we love even though it's still small. We've put a lot of money into un-glamorous improvements, like a $14k new heating and a/c, all-new electrical upgrade, foam insulation around joists, etc. We don't want a big yard or a pool or any of the things more expensive houses would probably come with.

I guess it's obvious what we WANT to do, but how stupid are we being?  :-)  We will end up with a (albeit) very fancy 3-bedroom, 2.5 bath for about $485k in a $350k neighborhood, with no garage, a small kitchen, etc.  If we continued to look around, we would probably be able to at least get a 3 or 4-bedroom place with a garage or finished basement or something like that, although a ground-floor bedroom is likely not going to happen.  On the other hand, if we did sell this place, we would need at least a new roof, probably some heavy landscaping, etc., and that would be just to break even.  We would also be dealing with a much higher interest rate on a new purchase, etc.

That said, all our friends who bought houses when we did have seen big increases in their home value in 10 years, where as ours hasn't improved much at all.  But, if we go into this it's with the attitude of "fuck resale" anyway, so how much would it matter?  And in the end, does that extra $60k deter us based on how much we had originally planned to sink in anyway?  We've spent about $10k on architect and tree removal already.

Okay, MM.  Lay it on me.  WWYD?

[ssmjlm]

What is the reason for the huge difference in price? I would see maybe a $20k over budget, but $60k is basically 50%.

[lys]

You plan to stay long term - fix the house for your wants and needs as you see them for now and into your future.. Forget about any potential differences in future price re-sell .

[raangoli]

I agree with RockNVoll but I do want to know how they architect and contractor were so off base with their initial estimate?

[kadams767]

Do you know how much of the difference in cost is an increase in material costs? That might be a big part of it, because building materials are $$$ right now.

[dr.girlfriend]

Nov 3, 2018 15:26:12 GMT -5 kadams767 said:

Do you know how much of the difference in cost is an increase in material costs? That might be a big part of it, because building materials are $$$ right now.

I don't want to give the impression that $125k was an actual bid.  Basically, before we even started down this road we met with the contractor and was like, "Here's what we want to do...knock down this garage and build the bedroom here, with this stuff.  If it's going to cost us $100k, we'll definitely do it.  If it's going to be $200k, it's probably definitely out.  Where do you think it will fall?" and that's how we got the $125k number, which is also something the architect thought she could work with.

$20k of that is definitely "extras" like the loft, having the bedroom part be two-story with a shed dormer in back for the loft and dormers in the front to match the main structure, etc.  Without that stuff, as well as a slightly smaller (3 feet less wide) footprint was the $165k quote.

As for the difference between $125k and $165k, I think a lot of that is the ultimate size we came up with -- when we realized we'd need a zoning variance, we went ahead and asked for the biggest size we thought we could get.  They are planning to dig a crawlspace all the way from the original house, past the added living room which is on a concrete slab, and then completely under the whole new addition.  We also have to get rid of the garage, which is about $16k in demolition costs as opposed to just building where nothing was before.

To illustrate, here's the plans.  Everything that is the original house is not outlined, everything that would be addition is outlined in orange.  We are enclosing an extra six feet into the family room, which again is a lot of new foundation.  Even reducing that by one foot (e.g., enclosing five feet instead) would cut a few thousand off the price, but honestly I think at this point we're kind of all-in or not.  :-)



And here's the current house:

[sadlebred]

You plan to live in this house almost forever. You can afford it. Do it and enjoy it!

[dr.girlfriend]

Nov 3, 2018 14:41:53 GMT -5 lys said:

You plan to stay long term - fix the house for your wants and needs as you see them for now and into your future.. Forget about any potential differences in future price re-sell .

I am not being sarcastic here in any way, but the fact that you of all people are telling me to go ahead and splurge may end up being the deciding factor.  

[mccallister84]

How realistic is it that everything stays in budget? I mean I have literally never heard of anyone coming in under budget on any kind of major house renovation.

[simpsongal]

I mean that’s a lot but plenty of people in your income bracket drop $60k on a car - a completely depreciating asset.

I’d go for it.

[L]

If it was me, I would not do it. I would move to another house in an improving neighborhood. Why isn’t your neighborhood increasing in value when others are? Personally I hate having the over-improved most expensive house in the neighborhood (which is my current circumstance & we just moved here in January). Our remodel was supposed to be $45K & 3 months long...it just finished up in 6mo and over $20k over the written contract! So double time & 50% increased cost. Contractors find ways to add costs—because things come up & inevitably changes happen. So I would not trust even the $185k as being the top end. Only way I’d stay is if I was really, really attached to my neighbors.

[fryjack2]

The only thing that’s making me hesitate is that no one I know has ever come in at budget when building, renovating, or adding to their home. No one. And I know 3 people who have done projects about the wizen of your ms and bigger in the last two years.

I would ask for worst case scenario numbers.

I’d look at the plans again and see what you can do now and what can wait (build the loft, but not the bookshelf and ladder yet etc).

If this is for sure your forever home, and it’s going to be paid off before you are too old to live there, I would make it what you want.

[aprilsails]

You are effectively more than doubling the size of your house footprint so I can easily see where the final cost comes from.

I do say you can do it, but I’m also going to warn that you will also need to anticipate another 10-15% increase in the final cost of you want absolutely everything included. This is going to be as a result of labour costs, finish selection, and increased materials cost.

Now, if you are buying all the materials yourself, you could probably tighten that up to 10%. I’ve just never seen a project of this magnitude come in under budget.

For the time period you are looking at living in this house, where you are with your current mortgage, and your salaries, the increased cost wouldn’t be a concern for me. Granted, we make a bit less and are building a house at $720K right now ($475K mortgage after DP), but housing costs in our area are quite a bit higher generally, and we’re willing to pay a premium for exactly what we want. We’ve looked at our budget and are happy with our plan for a forever home.

[kadams767]

I am of the mind that my home is my home and it isn’t really part of my investments. When we do improvements and renovations, I don’t add those costs into the price I pad for the house and need to ge back when/if I sell. Those are always improvements for us and as long as we can afford them, that is my main concern. I don’t really worry about overimproving for the neighborhood, especially for a house you plan on being in for an extensive time period, if not mostly forever.

My only concern is that I never want to be underwater on my house and owe more than I get back. But I consider renovations, maintenance and repairs sunk costs. I also know that I’m very fortunate to be able to take this view, but it kind of sounds like this would be your situation as well. If I could afford and it DH and I both were leaning towards moving forward on this, I’d do it.

[aksinger]

I’d say do it, it sounds like it will add so much to your daily quality of life. We just finished a $200k addition of adding a second building on our property for my business. It’s only been done 2 weeks, but we’re already loving it and glad we spent the money. It does put us at close to the top of our neighborhood, but it’s not too expensive for resale, even though we’re planning on that being decades in the future.

Our initial budget was $205k and we came in around $220. Materials, dirt work and freight cost more than anticipated, plus we added a few things at the end. We financed the majority of it and rolled it into our new mortgage, but we did pay $60k in cash. Probably my biggest regret is that we lost our better previous interest rate of 3.5% on a 20 year, we’re now at 5% on a 30 year. But maybe rates will fall again in the future, we wouldn’t be opposed to refinance again if it’s worth it. All in all, this huge project has already been worth it for our daily quality of life and I can only see that continuing to be a positive thing for us. Good luck with your decision!

[keweenawlove]

Is getting a 2nd opinion from another contractor possible?

It sounds like it would be worth it to you. You never know what property values are going to do in the next 10-20 years and if you think you'd be happy there long-term and can afford it, that would be enough for me. Especially if there's nothing for a similar price that you wo5 love as much.

[krystee]

Is doing it but waiting one year so you can save up the cash an option? I would be comfortable taking the loan in your position, but if you prefer cash, I think you could save that pretty quickly with your incomes.

[laterz]

You've laid out rational arguments for moving forward.
Forever home; job stability
First floor MB
Desirable area
No better alternatives
It seems like financially, you can swing the increase.

Here's what I'd make sure I was OK with:
Have you built in a buffer for overruns?
If you had to sell, would not having a garage be a disadvantage? (Not sure where you live; is winter an issue?)

I'm of the mindset that a home is first and foremost a roof covering my head, and somewhere I want to enjoy being. While I'd prefer not to lose money on it, I'm not in it only to make money.

[dr.girlfriend]

Nov 4, 2018 6:10:36 GMT -5 aprilsails said:

You are effectively more than doubling the size of your house footprint so I can easily see where the final cost comes from.

I do say you can do it, but I’m also going to warn that you will also need to anticipate another 10-15% increase in the final cost of you want absolutely everything included. This is going to be as a result of labour costs, finish selection, and increased materials cost.

Now, if you are buying all the materials yourself, you could probably tighten that up to 10%. I’ve just never seen a project of this magnitude come in under budget.

For the time period you are looking at living in this house, where you are with your current mortgage, and your salaries, the increased cost wouldn’t be a concern for me. Granted, we make a bit less and are building a house at $720K right now ($475K mortgage after DP), but housing costs in our area are quite a bit higher generally, and we’re willing to pay a premium for exactly what we want. We’ve looked at our budget and are happy with our plan for a forever home.

Yeah, I guess we hadn't thought about it that way because it is only 10 - 15 feet beyond where the current garage extends, so that's all level concrete slab.  But, I guess they are saying they need to dig all that up to do a crawlspace underneath, so that's not really saving us.  I have asked the contractor for another meeting to talk about the original plans in more detail, as well as to talk through "worst case scenarios."  Thanks for your input on overages, that's definitely something to consider.

[dr.girlfriend]

Nov 4, 2018 9:34:33 GMT -5 krystee said:

Is doing it but waiting one year so you can save up the cash an option? I would be comfortable taking the loan in your position, but if you prefer cash, I think you could save that pretty quickly with your incomes.

That would be like $7k a month...we are MM but not *that* MM.  That said, I have some questions about HELOCs, because we would be planning to try to pay down a HELOC as fast as we are able.  I'll post a separate thread about that though.

[bellalynn]

One other note to be in the back of your mind. Not only will you be adding to the initial cost of the project, but also heating, air conditioning, property taxes, maintenance, etc. also increase pretty significantly.

[dr.girlfriend]

Nov 4, 2018 12:03:12 GMT -5 bellalynn said:

One other note to be in the back of your mind. Not only will you be adding to the initial cost of the project, but also heating, air conditioning, property taxes, maintenance, etc. also increase pretty significantly.

Yeah, those costs we had already planned on, but I guess it's good to consider when you think about adding a loan payment to the mix...

[dr.girlfriend]

Nov 4, 2018 7:22:20 GMT -5 keweenawlove said:

Is getting a 2nd opinion from another contractor possible?

It sounds like it would be worth it to you. You never know what property values are going to do in the next 10-20 years and if you think you'd be happy there long-term and can afford it, that would be enough for me. Especially if there's nothing for a similar price that you wo5 love as much.

Yes, sorry, I should have mentioned that.  I actually met with three different contractors for bids.  The other one was super high, and the third guy wants to meet in person but then didn't get back to me.  We've been pretty confident we want to use this contractor, though, so the other bids were just to get a double-check.

[goldengirlz]

I think when all is said and done, it’s going to be a wash financially. You’re going to end up with a $500k house (give or take) whether you buy or build.

So really it comes down to preference and how badly you want to stay on your current lot. Since you can get exactly the house you want by building, and you’re not planning to move anytime soon, then that seems to be what your heart is telling you to do.

I don’t think there’s a wrong answer, necessarily, it’s more about your tolerance for the unknown. Construction is hell, and there are a lot of moving parts, but buying a new house also comes with uncertainties. Six on one, half dozen on the other ...

[bellalynn]

I’m not sure how it works if you get a loan (we luckily had enough saved) but it may be worth also asking your contractor if there are any discounts if you pay cash.

The other thing is you may be able to ask the contractor where he’s getting the lumber and if you can open an account there and have him use that. You might be able to work out a deal with the lumber company. Not all contractors will do that but it might be worth asking.

[ESF]

In addition to everyone else's points, I'll just add that the fact that the renovation is being done in part to plan for longer term physical challenges effectively makes this addition an investment in your retirement and in your health.

People who become suddenly disabled or develop health conditions that limit their mobility in some way have to make home renovations that do not improve the house or even lower the value of the house. Or they have to sell the house at a loss. Happens all the time. It's just part of life. You are in a very fortunate position that have a home you love in a neighborhood you love, some knowledge of the health challenges you will face as you get older, and the financial ability to take steps now to ensure you can stay in the house notwithstanding those challenges. I'd probably do it if I were in your shoes. Even if your home doesn't grow by the same value, you'll likely find that expenditure will be worth it in other ways as you age.

[insominac]

Nov 4, 2018 16:35:47 GMT -5 ESF said:

In addition to everyone else's points, I'll just add that the fact that the renovation is being done in part to plan for longer term physical challenges effectively makes this addition an investment in your retirement and in your health.

People who become suddenly disabled or develop health conditions that limit their mobility in some way have to make home renovations that do not improve the house or even lower the value of the house. Or they have to sell the house at a loss. Happens all the time. It's just part of life. You are in a very fortunate position that have a home you love in a neighborhood you love, some knowledge of the health challenges you will face as you get older, and the financial ability to take steps now to ensure you can stay in the house notwithstanding those challenges. I'd probably do it if I were in your shoes. Even if your home doesn't grow by the same value, you'll likely find that expenditure will be worth it in other ways as you age.

This is a really good point. We didn’t know it at the time, but we bought a house that will most likely not be very good for me as I get older (way too many stairs). The fact that you’re able to plan for this now is a good thing.

[mich1]

The one thing that I might suggest is that if you go through with the renovation, make sure that it is truly h/c accessible. That is that the door frames are wide enough to handle a wheelchair, a no step shower, higher commodes, grab bars, etc.

I have already done a trial run of my home and we had to take 2 doors off to get a wheelchair through those doorways. We have some work to do, but it is manageable.

[ellipses84]

If you consider your home an investment, there are compelling reasons not to do the renovation, like resale value without a garage. But when you consider your financial picture, the plan for it to be your forever home, special needs, lack of anything else in the area that would cost any less, and how much you seem to love your current home, I think you should do the renovation.

I can understand why the original estimate was off, because they didn’t really know the scope of the project at the time. The new estimate should be a lot more detailed, and I would discuss that with the contractor, and concerns for overages. You’ve done your due diligence and already invested time and money into the process, so I’m sure you have a comfort level with those you are working with. The lowest bid may be the cheapest on the first day, but it doesn’t mean it’s the best one to go with.

[dr.girlfriend]

Nov 5, 2018 1:07:37 GMT -5 mich1 said:

The one thing that I might suggest is that if you go through with the renovation, make sure that it is truly h/c accessible. That is that the door frames are wide enough to handle a wheelchair, a no step shower, higher commodes, grab bars, etc.

I have already done a trial run of my home and we had to take 2 doors off to get a wheelchair through those doorways. We have some work to do, but it is manageable.

Thanks,  mich1  ...we've already planned for the grab bars for the toilet and bathtub, because I have trouble going from lying/sitting to standing when I have disc problems (but taking a bath really helps).  I'll double check about the doors.  I was thinking a small curb of a few inches on the shower wouldn't be too bad -- what do you think?  Anyplace I've seen completely curbless showers (e.g., hotels with that design) it seems like the water just goes everywhere.  There will be a bench in the shower.