Buy small house and add on later?

By Don Dunning | August 19, 2008

A client called a few days ago and asked my thoughts on buying a small home and expanding it in three to five years. She and her husband have just had their first baby and are starting to think about space and schools. Her thought is to “get in” to one of the expensive areas known for good schools while the market is down.

I have heard this question many times. My advice: unless she is able to purchase the property at substantially under market value, I do not recommend this scenario. The home in this particular case, in my opinion, was overpriced and would not be a good financial decision.

Specifically, I gave her some things to consider:

  • Adding on is expensive. Most likely, it would have cost her and her husband at least $300,000, and probably more, to make the kinds of changes she was contemplating.
  • Will the extra space come from building up or building out? As is often so, the lot is not large enough to add on to the back of the house. Building up means beefing up the existing foundation, a big dollar item that has no future payback during resale.
  • People often move out and rent during the process, one that generally takes six to twelve months. This is an additional cost. If you live there during the dirt, dust and noise of demolition and construction, you will be paying another big toll.
  • Increasing the size and layout of a house is time consuming and physically and emotionally disruptive. It becomes a part-time job.
  • Most importantly, when considering the above, there is a greater likelihood that it will be more effective to spend more and buy a home of adequate size, even if it means waiting to do so. Although, by modifying the house after you own it, you end up with something you planned and wanted, it usually costs more in time and money than buying one that works for you.

    • What about buying a “distressed” property in a top location? Good idea, but if it is well priced, multiple offers will ensue and diminish its appeal. For more information, see
    “On Foreclosures, Short Sales and REOs” and the multi-part “Journal of a Remodelee.”

    My client decided to take my advice and take a more long term approach. I will be watching for more appropriate listings from this point on.

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