Fix Up or Knock Down?
Cost, location and timing are factors in the great renovate vs. demolish debate.
illustration by Pop Winson
For Karen Becker, the sale of her home in the southwest Edmonton neighbourhood of Skyrattler will be the end to an almost year-long saga. More than three years ago, Becker bought a 1980s-built house in the mature, treed neighbourhood with the intention of coming within inches – the width of the house’s external walls – of tearing it down. But, instead of demolishing the four-level split, 1,400-square-foot home, she hired contractors to strip it down to the studs, turf the popcorn ceilings and start over.
“It was an opportunity to build a house in a mature area without having to start right from zero. It was fun – it was something you want to do once in your life, and that’s good enough,” explains Becker.
Located on a tree-lined street and featuring an easy-to-landscape yard and quick access to Blackmud Ravine, Becker’s house should have sold quickly. Undertaking a large renovation to this attractive home was supposed to be an adventurous way to regain some money on her initial investment of $330,000.
“We pretty much tore the inside right down to the wood, and focused on the exterior – landscaping, the yard. And then we moved inside and gutted the whole house – took down most of the walls and ripped it right up,” says Becker. But $370,000 in renovations later and thanks to what Becker calls a “soft real estate market,” she’s selling the home at a loss.
As Alberta’s economy continues to weaken, opportunities abound for real estate buyers: Whether you’re a first-time buyer or experienced house flipper, the coming 24 months might just be the time to purchase a home. But how do you get that perfect home – the one with the customized kitchen, heated bathroom floors or fantastically efficient insulation? Do you renovate an older home or buy a tear-down and build from scratch?
For Steve Klein, owner of Revolution Carpentry and Construction, the answer to the tear down-vs.-renovate debate is rooted firmly in the age old real estate mantra: Location, location, location.
“It really depends entirely on location, quality of the foundation, quality of the house [and] character of the house,” says Klein. Lately, he is seeing more of his clients opting to focus on the medium- to long-term investment game by first purchasing in a favourite location, then assessing the home’s bones and spending money on energy efficiency while sitting on the property for a while.
Currently, Edmonton is in a buyer’s market, and the economic crystal ball watchers at the Canada Mortgage and Housing Corporation (CMHC) don’t see an end to this until 2017. The cost of an average single family detached home is estimated at between $373,600 and $409,600 in 2016. Couple these statistics with new rules that came into effect in February 2016 that require homeowners to make a 10 per cent down payment on any portion of a mortgage over $500,000 in order to qualify for Canada Mortgage and Housing Corporation insurance (along with the customary five per cent under $500,000), and it’s more difficult for entry-level buyers to buy, tear down and sell a house for more than half a million dollars.
Another key to selling homes is to ensure prospective owners aren’t going to lose money once they move in. Klein says that his clients are paying him to make renovations more energy-efficient.
“Doors and windows and proper roof ventilation system are the most important [energy efficiency] factors. My clients are doing doors and windows. I’m trying to push things that people aren’t always ready to invest in. Spray foam, for example, increases your R-value substantially. It’ll warm your house substantially,” he explains. “But people are afraid of the [upfront] costs. Energy-efficient furnaces, again, are a big investment, but everyone is doing them.”
For real estate agent Wendi Freudenreich, the answer to the renovate-vs.-demolish debate depends on a few things, including the down payment and how willing you are to manage renovation or building projects and timelines. Generally, Freudenreich recommends that first-time homebuyers invest in a property that doesn’t need too much TLC and can withstand some minor improvements.
“Unless you are buying a new cookie-cutter on the outskirts of town, or have found a builder holding a dream lot, it takes quite a bit of cash to be able to demolish. You have to have a very large down payment and excessively good credit,” says Freudenreich, who has been selling houses in Edmonton for 10 years.
It’s no surprise that Kristina Hoyle, interior designer for Revive Contracting, also sits firmly in the renovate-to-suit-your-needs camp. Once renovations are done, she advises, it’s important to think about when you intend to sell the house.
“[The] time of year that you’re listing a home makes a difference [in the speed of sale]. The last house we sold was listed right before December. It wasn’t really the best time of year to sell a home versus the spring, [which] is a really great time of year to list a home. There’s a lot more people in the spring; it’s just a better time of year.”
Becker likely agrees; she has since moved to Prince Edward Island for a dose of ocean air and refreshingly low real estate prices. And, hopefully, she has completed a spring sale of her Skyrattler home – mercifully rid of the popcorn ceilings, of course.