Buy New or Fixer Upper

[Kirk Graham]

I’m looking at renting out our current home and buying a new home. When our current home rents, it should cash flow no problem. My question is whether I should purchase a brand new home (just built) for $250k (it already appraises for $265k). Or should I buy an older home for $170k, put $30k into it (now $200k in) and have it potentially reappraise for $250k? We don’t plan on refinancing and pulling cash out because 80% of the new appraisal is $200k, so there wouldn’t be much cash to pull out since we are only putting 3% down. With the newer home, we would have about $25k or equity right away, and with the older home, we would have $55k after repairs. If we are happy to live in this next house for years to come, and we’d be more comfortable in the newer home, does the equity matter that much? Thanks for the input!

[Thomas S.]

A personal home is a life style decision not a investment. If it is not your intent to pull out the equity to use for investing then dead equity has no value. It will make no difference how much equity you have therefor it is entirely a personal decision as to whether you choose to buy new or renovate. If you enjoy renovating that should be the determining factor.

In reality equity only exists if you pull it out or sell. Until you do one or the other equity does not actually exist in any tangible form.