Should you renovate or relocate? Here's what's cheaper

Both options can have a big impact on your finances. Start by assessing your current situation and where you want to wind up long term, says property expert and sales agent at PPDRE Nicholas Charles.

"The first thing to ask is, 'Do I want to live in my current suburb again?' If the answer is yes, I encourage you to renovate and stay. If you relocate to an area that's not growing as quickly as the suburb you're currently in, you'll be priced out of the market," explains Charles.

Mocking up costs for both scenarios is an illuminating exercise, so it pays to do your research. Get a property appraisal on your home's current value, check recent comparable sales in your area and find quotes on the different costs associated with each to assemble an estimate.

If you relocate

"There are direct and opportunity costs to weigh up," says lending expert Matthew Phelps, a state manager for Bendigo Bank.

Direct costs for relocating include stamp duty, agents' fees, marketing fees, legal fees, removalists, and in some cases, rental fees if you want to "feel out" an area first.

Opportunity costs involve things like commute time, your cost of living, how close you are to amenities and family, and job opportunities – important for a regional move if remote work isn't guaranteed.

If you've decided to relocate, you'll likely need a new home loan. Consider whether you want a fixed or variable loan; features such as an offset account and redraw facility; monthly rates (noting honeymoon rates); as well as loan term, type of repayment and frequency of payment.

"Look for a good relationship with a banker or mortgage broker who can help guide you through the application process," advises Phelps.

If you renovate

"Work out: are you renovating to flip and make a quick profit or are you renovating your forever home where you may be inclined to spend a bit more?" says Phelps.

"You then need to decide if it will be a DIY project or undertaken by professionals. Calculate the size and type of renovation, whether that's cosmetic or structural."

If it's being left to the professionals, factor in costs for drafting renovation plans, external consultants like surveyors and engineers, council fees, and labour and material costs – plus a 10 to 15 per cent buffer for surprises. There's also rent if you're unable to live in the home during the process.

"You need to be conservative with your estimate as no market stays the same forever," advises Charles. "Instead of putting the renovation budget on top of your dream price, put it on the worst-case scenario."

Don't have the cash on hand to renovate? There are four ways to finance it, says Phelps.

If you have enough equity in your home, you could combine your renovation cost with your existing home loan balance into the one loan. Or, a home equity loan is separate to a mortgage and allows you to borrow against your home's equity.

For major structural renovations, a construction loan requires payment at each stage of the build, known as a progressive drawdown, and you incur interest on the fractional payments as opposed to the total amount.

If you make additional payments on your home loan and your projected renovation costs align with that amount, you could also withdraw some of the money you've already paid on your mortgage.

The verdict

"Often, once people add up all these costs, they realise it's cheaper for them to renovate," admits Charles.

"Unless your property has increased exponentially in value, if you're wanting more space in a similar profile suburb, you'll be paying more for a new property."

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This article contains general advice only. Readers should seek a trusted professional's advice on financial matters. Please read the applicable product disclosure statement(s) on the Bendigo Bank website before acquiring any product.