Some issues you didn't mention:

1) Do you like the neighborhood where you live? Are the schools good?
The commute okay? If yes then I would strongly look at the addition.

2) Don't forget to factor in the cost of buying and selling a home.
Commissions (6% of K), title insurance, lawyer costs, appraisal fees,
survey, moving cost, etc can add up quickly. By adding an addition, you
can avoid a lot of these.

3) Can you still live in your house as you build the addition you want?

4) As others mention, will you price yourself out of the neighborhood?

"Chris Smolinski" <cps[at]blackcatsystems.com> wrote in message
- quote -

My wife specializes in this (she's an interior designer) and she recommends
to her clients that they have AT LEAST a 20% reserve. She has never had a
client who didn't burn through at least that much (and none of the reserves
benefited her, she usually uses a not-to-exceed contract).

-Will

"jIM" <noreplysoccer[at]hotmail.com> wrote in message
news:1139848382.310922.288850[at]z14g2000cwz.googlegroups.com...
- quote -

This seems like a good source for comparison values: http://www.zillow.com/

In article <1139838809.252607.32760[at]g43g2000cwa.googlegroups.com> ,
"herlihyboy" <ryan.parmenter[at]gmail.com> wrote:

- quote -

FWIW, we were in a similar situation. We went from zero kids to three in
three years. We always felt that adding on to your home was usually much
smarter than selling and buying a new home. Especially when you consider
the loss you take due to the agent's commission on your sale, moving
expenses, etc.

Obviously there are special situations, you don't want to make your home
much larger than other homes in the neighborhood, especially if resale
value is important to you in the near future.

In our case, we converted our attached two car garage into a large
family room. We already had enogh bedrooms (4) and bathrooms (2) but
needed more daytime living space. It allowed us to enlarge the usable
kitchen space by converting the old family room into a dining room,
moving the kitchen table out of the kitchen, plus we did some other
small things.

We took out a small equity loan to pay for it, really the only
circumstance where I felt that was appropriate, since the loan against
the house paid for improvements to the house. I'm still not happy with
additional debt, but it was a much less expensive option than moving. We
didn't create a gourmet kitchen, we just added additional countertop and
cabinet space (previously we had a total of about 5 ft of linear
countertop space, which made it impossible for more than one person to
cook at a time. Actually it was difficult for even one person)

We got three bids for the work. We actually contacted five contractors,
and two never showed up. I later learned this is typical for the
construction industry. Two of the bids were close to each other, the
third was 50% higher. Of the two, we chose the one that was slightly
higher, as he was just about to finish up a job and would be ready to
start earlier. He started on time, and finished only one day late, which
was impressive.

Be prepared for some additional expenses along the way, both due to
things that weren't anticipated (in our case extra insulation for the
ceiling) and things that as construction progresses you suddenly decide
would be a good idea (such as an outlet in the center of the floor for a
table lamp so you don't have a cord across the floor for people to trip
on). So budget some extra money above and beyond the bid. Things happen.
Also, if you can, get the kids and wife out of the house for much of the
work, it is dirty dirty dirty. In our case they went to her folks for
almost two weeks.

In our case, there was no plumbing involved, and minor electrical. I
suspect adding a bathroom will be expensive relative to the square
footage. No way around that. I would suggest thinking hard, and really
decide what is a NEED and what is a WANT, many people confuse the two. A
second bath with a shower would be much less expensive than a whirlpool
tub, and really more practical as a bathroom just for the parents to
use, for example.

My wife and I were just discussing today our plans for adding onto the
house again, probably in 5 to 10 years, when the roof needs to be
replaced anyway. We talked about the addition we did for almost 5 years
before the work was done, it gave us a lot of time to plan out exactly
what we wanted.

--
---
Chris Smolinski
Black Cat Systems
http://www.blackcatsystems.com

"herlihyboy" <ryan.parmenter[at]gmail.com> wrote:

- quote -

That does not buy much of an addition, especially if you want a bathroom. It's
easy to spend 5K on the bathroom alone. Additions are expensive on a
per-square-foot basis because of the labor needed to demo part of the existing
structure and tie into it.

You can save considerable money if you have the time and talent to do part of it
yourself. Depending on your skills, you could have the contractor take the
project to the sheet rock, then do trim and paint.

- quote -

It doesn't feel like that to me. You're cashing part of your home to increase
the value of your home.

But that does bring up an important consideration. What will your home be worth
when you have done the addition? If it is already the largest house in the
neighborhood, you're probably not going to increase the value very much. If it
is the smallest home in the neighborhood, you make get more than your investment
on sale. Do be sure the addition is well designed and integrated with the
existing structure, not some frumpy wart.

-- Doug

I am guessing, at best. You stated it was a hypothetical, so I'll add
a few points.

$20k does not sound like a large home improvement. My deck was going
to run $20/sq ft for a good deck. No insulation, no roof, minimal
foundation work needed for the deck. I would assume putting a roof
over the deck would bump my estimates up to $50/sq ft, minimum. This
would allow for 400 sq ft of space to be added, enough for a room or
two, I guess.

I like the concept of reducing a mortgage to 15 years (instead of 30).
Are ther other factors for doing this? If you have the cash to pay the
higher 15 yr payment, have you considered using this cash for the
addition only?

Consider keeping the mortgage at 30 years and making the 15 year
payment. if life happens, you have the ability to make the smaller
payment until you get back on your feet.

I would look at new homes which increase your square footage. This is
for comparision purposes. Understand how much "more room" costs
without dealing with a realtor. Then maybe see a realtor to see how
similar square footage in existing homes is going for.

Compare:
Cost of new construction home with 20% increase in square footage
Cost of existing home with 20% increase in square footage
Cost of addition with 20% increase of square footage

for first two examples, also estimate moving costs.
for all 3 examples, estimate new furniture costs.

Then compare loans. if you refinanced there are closing costs in all 3
cases. If you can find cash to finance the addition outside of
refinancing, then there may be cost savings associated with remodeling
relative to moving.

Here's a hypothetical my wife and I have been batting around. Some
details...

~80K current mortgage
~120K home value
~ 25 years left on a 30 yr conventional at 6.75%

When we bought the home, we had one small baby. Now, we have three
boys ages 5 and under. We are starting to think about trying to
increase our living space, either by moving or by adding to our current
home. We have only one, small bathroom and would like to add a second
bathroom and possibly some additional "bonus" space [could be a
bedroom, family room, etc.].

Financially, we have determined we could have a mortgage amount of
~120K. On a 15 year note, this would be about 25% of our takehome pay,
which is the guideline to which we are trying to adhere. So, if we
move, with the equity in our current home, we are looking at 150K
homes.

Now, let's say an addition would run 20K. What is the difference
[financially, emotionally, ???] between the moving plan in the above
paragraph and refinancing our current home to a 15 year note, and
bumping our mortgage amount up to 100K from 80K [taking some equity out
in cash] to pay for the addition? In either situation, we would remain
at better than 20% LTV [no PMI] and would reduce to a 15 year note in
both cases.

I'm trying to find a problem with the home addition scenario as it
feels like we're another "cash my home to pay for something" case
study. If we decided to save up and pay cash for the addition, it
would probably take about 6 years to save the 20K.

Thanks in advance for the advice,

Ryan