Using home equity to build?

Question

Keeping it simple, can you use your home equity to build acting as a contractor, so you have "instant equity" in the new home? I worked construction, both in the field and in the office, so I know the process of construction and can build, but what is the best way to use home equity to build bigger, and sell existing home? At the end, I hope to have more equity, because I have the same principle or even smaller, but more house.

Answer 1

Here are a few things to consider before renovating your home for the sole reason of making it worth more. Maybe this will help you decide.

Keep in mind your neighborhood when adding on. The largest house in the neighborhood usually sells at a discount. For example, if the homes in your neighborhood are around 2100 - 2300 sqare feet, and you expand your house to be 2800 - 3000 sq ft., your house will sell for fewer dollars per square foot to pull it in line with the selling price of the other homes in the area. If other homes near you are larger, or have also had building additions, this may not be as much of an issue. Home additions also command a lower $/sq ft value than the original structure.

Renovations rarely recover 100% of the costs. You will proabably be able to save money since you have been in the business and can act as your own contractor, but you also need to keep in mind the intrest and loan costs of the remodel, not just the construction costs.

In theory, you will have more equity because you have more house, but if you use a bank loan to access the equity, then it is actually the bank that has the equity, not you.

I recommend talking to a local real estate agent about your plans if you primary goal is to have a more valuable home. He or she will be able to tell you what your neighborhood and its buyers consider valuable.