How to buy a new house while selling your old one
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When it comes to your return on investment, not all home renovation projects are created equal. Home-sellers with an eye on maximizing profits are wise to carefully research which improvements will equal the largest profit margins—and which projects will barely help the seller break even.
To find the home renovation projects with the lowest return on investment, Upnest analyzed data from Zonda Media’s 2021 Remodeling Cost vs. Value Report. The Cost vs. Value (CVV) Report relies on an econometric model that uses construction cost estimates along with economic indicators, such as local market housing, income, and employment, in 150 U.S. markets to create the best estimate of the cost of a project and its resale value.
The projects selected for CVV are ones that are historically common projects done by the roughly 200,000 remodeling professionals and are projects that can be priced accurately. As a result, more elaborate and discretionary projects that include more selections (choices for specific finishes, materials, fixtures, and appliances) that may or may not appeal to a wide range of homebuyers are not included in the CVV analysis. Other common projects that vary significantly in cost depending on region and climate—like finishing basements and attics or enclosing a porch—are not included due to an inability to provide accurate cost estimates.
Twenty-two total renovation projects were selected, and the six with the lowest percentage of construction cost recouped are ranked below. Keep reading to find out which home renovations have the lowest return on investment when it comes time to sell.
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- Average cost: $75,692
- Average resale value: $41,473
- Percentage of cost recouped: 54.8%
The CVV Report’s upscale bathroom remodel assumes expanding within the original home’s footprint a 35-square-foot bath to 100 square feet, moving fixtures, and installing electric in-floor heat, among numerous other upgrades. This renovation may feature attractive amenities like a freestanding soaker tub, high-end fixtures, and a custom drawer base, but it doesn’t add up to a high ROI.
Instead of springing for an upscale bath remodel, consider more simple cosmetic fixes—like replacing broken tiles or fixtures, updating an old backsplash or floor, or installing new countertops. Some metrics suggest nearly a $1.75 return on every $1 spent for these more minor upgrades.
Breadmaker // Shutterstock
- Average cost: $156,741
- Average resale value: $85,672
- Percentage of cost recouped: 54.7%
Adding a midrange primary bedroom onto a house may seem like a project that will make sellers see your home as turn-key, but it is rarely known to help close—or bring a noteworthy amount of profit to a sale. One of the best ways to gauge how worthy an investment like this is, is to look at similar homes on your block or in the neighborhood. If primary suites are the norm in the area, it makes more sense to splurge on this upgrade than if the neighbors largely stick to two-bedroom homes. The privacy and relative luxury of a private section of the house won’t do a seller much good if it puts the house too far above nearby comps.
Rather than creating a new addition, consider working with existing spaces: Converting an unused attic or combining two bedrooms (only if there’s one to spare) will save as much as 80% on the cost of the buildout and make better use of otherwise wasted space.
Artazum // Shutterstock
- Average cost: $149,079
- Average resale value: $80,284
- Percentage of cost recouped: 53.9%
A high-end, major kitchen remodel can be a truly worthy investment for homeowners planning to enjoy the fruits of their labor, but these projects on the whole don’t add much by way of financial return.
Upscale kitchen improvements cost nearly $150,000 on average and run the risk of not matching a buyer’s vision for the space. In such a situation, your investment is ultimately rendered moot. All the details of a kitchen only increase the likelihood of your aesthetic not matching a prospective buyer’s.
Any home remodels should also be in line with the overall value of the home: High-end, expensive upgrades in a home worth as much as the kitchen may not be the most worthy investment. As with other upgrades—and other remodels with low ROI—it’s essential to consider other homes in your neighborhood and whether the upgrades you’re considering are the norm or the outlier on the block.
Anatoli Igolkin // Shutterstock
- Average cost: $56,946
- Average resale value: $30,237
- Percentage of cost recouped: 53.1%
A midrange bath addition assumes the creation of a 6x8 room off the existing house and over a cement-walled crawlspace. The addition requires all-new fixtures, ceramic tiles, and basic wiring. The addition otherwise replaces everything in the room for about 75% the cost of an upscale remodel but with an even lower return on investment.
Additional bathrooms bring in the best ROI if they’re necessary—such as in a case where there isn’t already one on the first floor, or if the primary bedroom is a long walk down the hall from a bath. Smarter bathroom investments generally come by way of simple upgrades like nicer hardware or fixing significantly dated tiles or vanities.
Artazum // Shutterstock
- Average cost: $103,613
- Average resale value: $54,701
- Percentage of cost recouped: 52.8%
Adding a brand-new, 100-square-foot master bath to your master bedroom is even worse for your projected ROI than a midrange bath addition. That may be because some of the amenities—from in-floor heat to high-end faucets—project more of a sense of upkeep and expense than luxury.
Interestingly, different regions in the U.S. tend to have different ROIs for these projects. If you’re in the Pacific region, for example, you may see a significantly higher return on an upscale bath addition than those in the North Central United States. Be sure to check comparable homes in your area to see if an upscale bathroom renovation makes sense for your neighborhood.
Artazum // Shutterstock
- Average cost: $320,976
- Average resale value: $152,996
- Percentage of cost recouped: 47.7%
The CVV report quantifies an upscale primary suite addition as a 32x20-foot room with a crawlspace below and a spacious, attached bathroom. The layout has a few red flags for buyers, though—from excessive space that spells expensive upkeep and maintenance to custom bookcases and custom mantle over a high-end gas fireplace. Custom, luxe items are pricey add-ons that a potential buyer may remove anyway.
Additions like this one are best for a current homeowner who’s intending to stay in the house for years, as these kinds of renovations may not be to a new homeowner’s liking. If you’re selling a home that doesn’t have a primary bed with an attached bath, consider a more modest project with fewer bells and whistles (and a smaller footprint!) to get the highest possible return on investment.
This story was produced and distributed in partnership with Stacker Studio.
Aleksander alexmisu / Alamy Stock Photo
New data from the Case-Shiller Index reveals that the housing market is rising at a rate that hasn’t been seen in decades. While the year-over-year change in home prices hit a historic high in 2005, that housing boom was tame compared to 2021 when considering the speed at which prices have risen in the past year. Home prices have been rising for over a decade; however, prices have been skyrocketing at near-record rates—13.2% in March 2021. Fueling the blazing housing market has been five main factors, according to a January 2021 analysis from Harvard University’s Joint Center for Housing Studies. These include a prolonged housing production shortfall since 2008; record-low mortgage rates; fewer homes for sale due to stay-at-home orders and pandemic concerns; a shift in family spending away from travel and entertainment toward housing; and an acceleration of second home purchase. These factors combined to spur housing price increases felt on national, state, and local levels.
As homebuyers face the prospect of increasing prices, they also have to deal with another sobering reality: new homes priced under $300,000—approximately what the median American household would be able to afford—are increasingly rare. New residential sales data from the U.S. Census Bureau indicates that the percentage of homes under $300,000 dipped to 35.4% in Q1 2021, a decrease of more than 46 percentage points from Q3 2002 when 82% of new homes on the market cost less than $300,000.
At the state level, homes are most expensive in Hawaii, where the median price is nearly $710,000, or about 150% higher than the national median price of $281,370. California is second at $654,629, which is also more than double the national median. Massachusetts and Washington are the third and fourth most expensive states, respectively, with home prices just under half a million dollars, according to data from Zillow. At the opposite end of the spectrum, West Virginia’s median home price of $116,723 is the lowest in the nation and 58% lower than the national median. Other states in the South and Midwest, such as Mississippi, Arkansas, and Oklahoma, report similarly low prices alongside below-average year-over-year growth.
To determine the locations with the most expensive real estate, researchers at Inspection Support Network analyzed data from Zillow and the U.S. Census Bureau. The researchers calculated median home value using the most recent Zillow Home Value Index (ZHVI), and included the previous one-year change in home value, the forecasted future one-year change in home value, and median household income. To improve relevance, only metropolitan areas with at least 100,000 residents were included. Additionally, metros were grouped into cohorts based on population size: Small: 100,000–349,999 Midsize: 350,000–999,999 Large: 1 million or more
MIHAI ANDRITOIU / Alamy Stock Photo
Median home value: $375,407 Difference from national median: +33.4% Previous one-year change in home value: +15.0% Projected one-year change in home value: +11.4% Median household income: $67,818
Rob Greebon / Alamy Stock Photo
Median home value: $441,931 Difference from national median: +57.1% Previous one-year change in home value: +25.5% Projected one-year change in home value: +26.8% Median household income: $76,844
Jon Bilous / Alamy Stock Photo
Median home value: $460,833 Difference from national median: +63.8% Previous one-year change in home value: +16.2% Projected one-year change in home value: +15.4% Median household income: $65,121
Douglas Pulsipher / Alamy Stock Photo
Median home value: $466,768 Difference from national median: +65.9% Previous one-year change in home value: +18.3% Projected one-year change in home value: +16.9% Median household income: $74,842
Median home value: $482,708 Difference from national median: +71.6% Previous one-year change in home value: +13.3% Projected one-year change in home value: +13.7% Median household income: $74,792
Sean Pavone / Alamy Stock Photo
Median home value: $498,649 Difference from national median: +77.2% Previous one-year change in home value: +11.5% Projected one-year change in home value: +11.8% Median household income: $103,751
Adonis Villanueva / Alamy Stock Photo
Median home value: $507,735 Difference from national median: +80.5% Previous one-year change in home value: +14.3% Projected one-year change in home value: +14.3% Median household income: $72,280
Andrew Zarivny / Alamy Stock Photo
Median home value: $517,395 Difference from national median: +83.9% Previous one-year change in home value: +12.9% Projected one-year change in home value: +13.6% Median household income: $79,664
Sean Pavone / Alamy Stock Photo
Median home value: $530,082 Difference from national median: +88.4% Previous one-year change in home value: +9.5% Projected one-year change in home value: +8.5% Median household income: $78,773
Sean Pavone / Alamy Stock Photo
Median home value: $563,149 Difference from national median: +100.1% Previous one-year change in home value: +11.6% Projected one-year change in home value: +10.5% Median household income: $90,333
Image Source / Alamy Stock Photo
Median home value: $627,290 Difference from national median: +122.9% Previous one-year change in home value: +14.6% Projected one-year change in home value: +14.8% Median household income: $86,856
lucky-photographer / Alamy Stock Photo
Median home value: $729,318 Difference from national median: +159.2% Previous one-year change in home value: +16.5% Projected one-year change in home value: +15.4% Median household income: $78,980
Sean Pavone / Alamy Stock Photo
Median home value: $783,610 Difference from national median: +178.5% Previous one-year change in home value: +10.4% Projected one-year change in home value: +12.4% Median household income: $72,998
Pete Niesen / Alamy Stock Photo
Median home value: $1,235,705 Difference from national median: +339.2% Previous one-year change in home value: +7.4% Projected one-year change in home value: +14.1% Median household income: $106,025
Sundry Photography / Alamy Stock Photo
Median home value: $1,364,273 Difference from national median: +384.9% Previous one-year change in home value: +5.9% Projected one-year change in home value: +11.2% Median household income: $122,478
Selling your house and buying another home at the same time is the ultimate feat in multitasking, and it comes with a tricky timing challenge.
If you have a mortgage on your current home and you buy a house before selling, you could get stuck with loan payments and the cost of upkeep on both properties. If you sell your house before buying, you might have nowhere to go after the sale closes.
But with planning, the right financing and strategic pricing and negotiating, you can time the sale and the new purchase in a way that works for you.
Here are some strategies to make it come together.
Laying the groundwork for buying and selling
There’s lots of prep work for buying and selling, so start getting ready for both as soon as you can.
“The more you plan, the more it will save you from making big mistakes,” says Brian G. Smith, vice president of national business development at Union Home Mortgage in Ohio.
Get ready to sell
A good listing agent can provide guidance on how to prepare your home for the market.
That will include making any necessary repairs to remove red flags for buyers, as well as decluttering and cleaning, says Joey Sheehan, an agent with Berkshire Hathaway HomeServices Fox & Roach, Realtors in Bryn Mawr, Pennsylvania.
“Almost every house is too cluttered from the point of view of selling because selling a home is an entirely different activity from living in it,” Sheehan says.
After cleaning and decluttering, get photographs and videos of the home completed so those materials are set to go when you’re ready to list the property, recommends Christian Ross, managing broker for Engel & Volkers in Atlanta.
Get ready to buy
“Number one is to make sure your finances are in order. A lot of people say, ‘Oh, I know, I have great credit. I know I can get approved,'” Ross says. “But lending guidelines are changing every day.”
To get an offer accepted in today’s hot housing market, you’ll either need to have cash to buy it outright or be fully preapproved for a mortgage to finance the home, without any conditions from a lender that your existing home must sell first.
“The preapproval process for all borrowers should really start before they jump in and begin house hunting,” says Brian Blonder, senior vice president for mortgage sales at Capital Bank in Maryland.
How to make the money work
When selling your home, you likely will use the proceeds to pay off the mortgage and then apply any remaining money toward the next property.
But until that sale closes, you’ll need to come up with money for a down payment and have financing set up to buy the next home.
Some homeowners tap into savings accounts for the down payment on the next house. But not everyone has a hefty enough balance to make that work. Here are some other options.
Home equity line of credit
You could use a home equity line of credit, or HELOC, on your current home to draw cash for the down payment. But you’ll need to have the HELOC already in place; a lender won’t approve the credit line after you’ve put your house on the market, Blonder says.
Don’t wait until the last minute to apply if you think you might use a HELOC someday to finance the next purchase. Smith says sometimes a line of credit can take longer for approval than a first mortgage.
With a bridge loan you can borrow up to 80% of your home’s value to pay off the old mortgage and put any remaining money toward a down payment on another home. Or you can use a bridge loan as a second mortgage to borrow a portion of your home equity for a down payment.
You make interest-only payments on the loan, and the maximum term is typically a year. But usually, bridge loans are paid off much more quickly because they’re designed to fill that short gap between the old-house sale and new-house purchase.
Because the term is short, interest rates are a couple of percentage points higher on a bridge loan than for a regular mortgage.
Some applicants who get approved for bridge loans don’t even need to use them because the sale ends up closing before the purchase after all.
401(k) or other investment account loan
You can borrow against a retirement or other investment account to get money for a down payment. A 401(k) loan, for instance, lets you borrow up to half the balance or up to $50,000, whichever is less, at reasonable interest rates.
The upside to borrowing against an investment account is that lenders don’t count that loan as debt when calculating your debt-to-income ratio for a mortgage preapproval, Blonder says. Ideally, you’ll repay the loan against your investment account as soon as your home sells.
Just make sure you stick with your plan to repay the loan after the old house sells and resist the temptation to use the money for other things. Defaulting on a loan from a 401(k) account can trigger taxes and penalties.
One option is to get a low-down-payment conventional mortgage to purchase your next home. Then when the sale of the old house closes, apply the proceeds toward your new home and get your mortgage recast.
When recasting the loan, the lender applies the lump-sum payment toward the principal and redoes the amortization schedule, which shows how much of each payment goes toward interest and how much goes toward reducing the debt. Recasting the mortgage will lower your monthly payment, and it’s a less costly and simpler process than refinancing a mortgage, Smith says.
But plan ahead. Not all lenders offer mortgage recasting. And this service is not available for government-backed loans, such as FHA, USDA or VA loans.
A new way to buy and sell
A variety of newer companies, such as Homeward, Knock, Opendoor, Orchard, Ribbon and others are remaking the way homes are bought and sold. Their services vary, but generally they provide financing so you can make a cash offer on your next home before closing the sale on your existing home — and avoid paying for two mortgages at once.
For example, with Homeward, you get approved for a mortgage and work with the company to make a cash offer on a new home. You can use your own lender or the company’s lending affiliate, Homeward Mortgage. If your offer is accepted, you move into the home after the purchase closes and list and sell your old home. While you’re waiting for your old home to sell, you rent your new home from Homeward for up to six months. If your old home doesn’t sell in six months, Homeward says it will buy it from you. Once your former home is sold, you close on the new home.
These companies comprise a sliver of the real estate market today and operate only in certain markets. So you’ll need to check whether their services are available in your area, see if you and your property qualify, and then compare the costs versus going the traditional route.
Getting the timing right
Once your financing is in place, a real estate agent can help you time the sale and purchase. One way is to negotiate the closing dates to work best for you.
“It’s not so hairy if you really think it through and get everything organized properly,” says Sheehan, author of “Open House!”
Here’s how she has helped clients make everything come together on the same day:
- Her clients get their house ready to sell, and then shop for a new home.
- Once they’re under contract to purchase and the inspection and negotiations are completed, they put their current home on the market and indicate a settlement date timed to coincide with the purchase closing.
- The sale of their old home closes in the morning, after all their stuff is on the moving van.
- The purchase closes in the afternoon, and they move in.
If the purchase will close a day or more after the sale closes, you’ll need a place for you and your stuff. If it’s only for a day or two, maybe you stay with friends or at a hotel and keep your belongings on a moving truck.
But if it’s much longer, you can negotiate a “rent-back” agreement with the buyer. These agreements usually top out at 60 days but often are used for just a few days to give sellers some flexibility, Ross says. In today’s competitive market, some buyers offer to let the seller stay for free.
Just be aware that squabbles can arise with rent-back arrangements. What happens, for instance, if the former owner gouges a hole in the wall? Your real estate agent can guide you with setting up the agreement and including language in the contract to protect both parties.
Can’t finance before you sell?
If you can’t qualify to finance a purchase until the sale on your first home closes, Ross says to plan where you’ll live after you’ve sold the property and until you find a new home. In today’s market it may take a few months to find a home and win a bidding war. She recommends looking for a rental property with a short-term lease or one that lets you leave with a month’s notice.