My husband and I have two children under 2 years old and have outgrown our current 1400 square foot home. My husband and I both work from home, and we have a day nanny who comes and helps with the kids. All five of us our falling over each other all day. We would like to acquire more space and more storage.
Background details: Our current home is worth $285K, and we owe $185K on the mortgage. Our interest rate is 3.14%, with a biweekly payment of $420. We have a savings/investment target of $3,500/month (kids' college funds, emergency funds, and retirement), which we can barely afford now, given our other normal expenses (car payment, groceries, etc.). Our largest expense is our nanny at $2,500/month, which will go away in about 3 years when our youngest heads off to school.
We've considered two options: remodeling our current home, or buying a large home. Each has their own set of pros and cons.
Option 1: Remodel
We have an unfinished basement which we do not use very efficiently. We could gain about 700 square feet of usable space if we refinished it. A real estate agent estimates that it would cost us around $15K to finish the basement (the average in the neighborhood for our size of basement), and that we could expect to get almost all of that back on resell. We would also need to remodel the kitchen to add more storage space and functionality. Kitchens are expensive and we'd have to do a lot, so I'd estimate about $10K for this task. We would able to pay cash for such a renovation.Pros:
- Cheaper than Option 2 (below) because we can stay in a lower mortgage after the renovation
- With more free cash, we can more consistently hit our savings and investments targets each month
- Less risk. If one of us loses our jobs or an unexpected expense comes along, we have a little wiggle room, since we're not locked into a higher mortgage
- Would be very disruptive to renovate, with two small children, the nanny, myself, and my husband who are all home all day
- It won't be a 100% satisfactory solution, because a lot of the space we gain will be in the basement, which is somewhat inconvenient for a kids' playroom (up and down and up and down the stairs we go!). A better solution would be a main-level kids playroom, close the kitchen and/or living room.
- We don't want to price ourselves out of the street. Being the most expensive home on the street is bad for resell, real estate agents say.
Option 2: Buy a larger home
The idea here is to sell our home and buy the "next level" of home: somewhere in the $500K-$600K range. The larger home would have the more space and more storage that we seek. There are plenty of such homes in our neighborhood, which means we can keep the same school district, amenities, friends, etc. With current mortgage rates (in Ontario, currently around 3% fixed for five years) and a 5% down payment, this would give us an estimated monthly payment of $2000 - $2500.Pros:
- Won't have to live through a renovation
- It's a 100% solution: we can can get exactly what we want, or at least very close. Having more space will make day-to-day living much more enjoyable
- Will lose money on closing costs (real estate agent's fees, etc.), about $15K total
- Will have to pack boxes and move them, which is disruptive.
- Will have to sell our current place, which always carries some risk of how long it will take. To sell our current place, we'd have to do some minor repairs and painting, totaling perhaps $4K.
- Will increase the amount of monthly expenses (higher mortgage, utilities, property taxes) we bear, meaning we can save/invest much less that we'd like to. (However, in three years when the nanny leaves, we will have an extra $2,500 freed up for savings/investments.)
- More risk. If one of us loses our jobs, we're screwed until we find a new one. (Our emergency savings as of right now unfortunately isn't high enough to carry us very long in the case of a lost job.)
Given the above two options, does any one have any advice? Any pros or cons that I missed?