Renovate or relocate? To help one family decide, we asked an investment advisor, contractor and real estate agent to assess their situation and give expert advice.

The family
Mark and Karen Podborski and their two-year-old daughter, Eve, live in a three-bedroom house in Toronto. Mark and Karen are both self-employed and work from separate home offices.

Before Eve's arrival, they renovated their kitchen and installed new windows throughout. Karen also converted her office into a nursery. When she returned to work, she set up shop in a corner of the living room, but it was too cramped. She needed an office. Mark and Karen also wanted a family room that would double as a playroom for Eve. They wondered if they should finish the basement with a bathroom, small office and family room, or move to a bigger house.

“If we renovate now, we want to make the money back if we sell the house in five years,” says Karen, who thinks they'll eventually move to be closer to a good school.

What the investment advisor said
Mark and Karen think they can afford to spend $20,000. “They want advice on a short-term goal, but it should all be part of a long-term plan,” says Priscilla Low, an investment advisor with BMO Nesbitt Burns in Toronto. "They need to invest in their retirement and Eve's education, too."

However, she points out some factors in their favour: they have little debt; their earning power will increase over the next decade; and interest rates are currently low, so financing a higher mortgage or borrowing for a reno is feasible. Her final opinion: "They can afford to do this."

What the contractor said
"The first thing I ask people who are thinking of renovating a basement is how long they're going to stay there," says Jim Caruk, a master contractor and host of HGTV's Real Renos. "If they say five or 10 years, I say 'OK, don't expect to get your money back.'"

He also suggests hiring an architect to draw up blueprints, which adds 10 to 15 per cent to the total cost. Without drawings, contractors might bid on different details, so you end up comparing apples to oranges.

Blueprints also cut down on changes a client is likely to make once work begins. "Changes cost money," says Jim. Even with blueprints, add another 10 to 20 per cent for hidden costs and unforeseen changes, he adds. That's a total of 20 to 35 per cent ($4,000 to $7,000) on top of Mark and Karen's budget of $20,000.

Jim also thinks their original budget is tight (see Real Basement Reno Costs, next page), especially if they decide to raise the basement ceiling height by digging down the floor.

What the real estate agent said
Rhonda Barresi of Gallo Real Estate in Stouffville, Ont., agrees with Jim that a basement renovation doesn't pay back. "A basement is a great selling feature, but it doesn't make the house worth a lot more," she says. What does? "Location, location, location," says Rhonda. "New kitchens, bathrooms and windows are good, too."

According to the Canada Mortgage and Housing Corporation, expect to make back only 50 per cent of your initial investment by finishing a basement -- a kitchen reno returns 68 to 73 per cent. Rhonda also warns Mark and Karen that a basement reno may price their house out of the market by making it worth more than what houses in their neighbourhood sell for. She estimates that the Podborski house is worth about $345,000, a big jump from what the couple paid 10 years ago, thanks to their kitchen reno and the hot real estate market.

If they decide to move, Rhonda says they should expect to pay about four to six per cent ($13,800 to $20,700) in real estate commissions, land-transfer taxes, legal fees, moving costs and utility hook-ups. She thinks Mark and Karen should take the profit they would make from the sale, and take advantage of low mortgage rates and buy a bigger house with a finished basement a little further from the city.

The final decision
After finding out how much a basement reno would cost and knowing that they wouldn't get all that money back, Mark and Karen decided to move. Happily, their house sold quickly for more than the $345,000 they were asking.

"The bank wanted to keep our business, so it gave us a penalty-free discharge on our old mortgage and approved a new one for $30,000 more at a substantially lower rate, so our payments barely went up," says Mark. Karen adds, "The new house is much bigger than our old one but was only a few thousand dollars more because it's outside the city."

So even though their $20,000 got eaten up in selling and moving costs, the extra money borrowed for the mortgage allowed the couple some cushion in case the new house needs unforeseen maintenance work. "At least with the move, the chaos will settle down in two or three weeks instead of months of messy renovating," says Karen. "Plus our new house is closer to parks and schools for Eve."

Real basement reno costs
• Blueprints $3,000
• Bathroom (minimum) $8,000
• Walls (ready to paint) 1 sq. ft. @ $3.50 x 500 $1,750
• Fix uneven floor $500
• Pot lights 10 @ $140 $1,400
• Radiators 3 @ $750 $2,250
• Windows 3 @ $470 $1,410
• Carpeting 1 sq. ft. @ $2.20 x 500 $1,100
..........................
Subtotal $19,410
• 10% extra for unforeseen changes $1,941
...........................
TOTAL $21,351

NOTE: The total doesn't include the option of lowering the basement floor. That would add anywhere from $15,000 to $30,000 -- well beyond Mark and Karen's budget.

For help deciding whether or not the renovation you're planning will pay off, check out cmhc.ca. Many publications (some free and some for nominal fees) are available to order, but there's also a great Before You Renovate guide posted online to get you started in the planning process.