Add On or Move?

Ann Marie and her husband have four small children and one bathroom. They want to stay in the house, but they need to add on. Is it wrong to stop their retirement contributions to pay for an addition?

QUESTION: Ann Marie in California and her husband are Baby Step 6. They have four small children and one bathroom. They want to stay in the house, but they need to add on and have no money left in the budget to do so. Is it wrong to stop their retirement contributions for a little while to pay for an addition?

ANSWER: Obviously, you’ve got a situation that’s untenable. You’re going to add on or you’re going to move because you’ve got one bathroom and kids coming out your ears. You’re not going to last in that situation. You’re going to do one or the other. So the question then is which is the wiser to do and what works out best?

You could stop temporarily and save up and pay cash for an addition. The thing you want to be very, very careful of is to not overbuild the neighborhood.

If you’re talking about more than an $80,000 addition, yeah, you should move on. If you put $20,000 in this house and if you can add a bathroom and a bedroom and the square footage makes sense and you don’t make it ugly and look like a pretzel because you didn’t think about how the architecture looked so that nobody wants to buy the thing because it’s known as the crazy house and that kind of stuff—don’t do that—but if you do it right and you add a bedroom and a bath, you ought to be able to do that fairly inexpensively if you’re wise about how you do it.

Let’s say you did that for $40,000 and the house is worth $120,000. You’d only have to get $160,000 out of it when you sold it for it to have been an okay investment, right? I can tell you that what you’re talking about doing—you’re talking about putting a roof, foundation—you’re building a little house attached to your house the way it’s designed, right? It’s very expensive square footage to add. You’re barely going to get the money out of it that you put into it. And if you go over the neighborhood, you’re not going to even do that.

I would say if you’re going to spend up to $40,000 and you save that in cash to do it with, yeah, that’s fine. Otherwise, I’d just move. It’s a lot easier.

I’ve got to be straight with you. There’s no place I want to live that bad. I would move before I went through all that crap. You’re turning your whole life upside down and you’re going to have construction dust in your hair for two years. I wouldn’t do it. It’s not worth it. I would just go get a different house. But I’m a real estate guy, so I don’t get tied down to houses too much. It’s just a stupid house.

You’re starting over again on your retirement if you don’t move. It’s pay me now, pay me later. You could sell this house, take the money out of it, and go into a little bit more debt on a mortgage—a 15-year fixed—make one simple move, and have a situation where the lifestyle is reasonable—number of baths and bedrooms with where you are with your income and you’ll still be just fine. But a 15-year fixed where the payment’s no more than a fourth of your take-home pay—you know the drill—and move up a little in house. Honestly, if I’m in your shoes, that’s what I’m doing. You can go the other route, save up and pay cash for it, but it’s tough—just to get a bedroom and a bath when literally you could put this house on the market, it sells, and by Christmas you could be in another house and be done with this whole discussion. That’s the way I look at it.