Q: We are in a dilemma. We bought 20 acres with a “fixer-upper” farm house 14 years ago for $115,000. Two years ago, we purchased 12 acres adjoining our property. The property has creek frontage and much of it is wooded with large old trees. We probably spent about $30-$40,000 on the house to fix it up. It is a very small house and our family of six has now outgrown it.

We are trying to decide if it makes more sense to tear it down and build a new house or if we should attempt a major addition. Adding on would involve tearing off 2 rooms of existing house and adding a basement under the new section.

Due to zoning regulations, we cannot have 2 houses on the property, so building a new house and renting out the older home is not an option.

Our land is appreciating in value, and is worth much more than the old farmhouse, so we are gaining equity there. If we live in the house the way it is, we will pay off our mortgage in 3 years and we’re only in our mid 40s.

On the other hand, we need more space. Is it foolish to spend money on the addition?

A: First, let me say I’m amazed that you own 32 acres and are not allowed to build two homes on this property — those are some zoning regulations! Are you sure you’re not misreading the zoning code? There may be someone at your local village or city hall that can help you determine how you could go about building a second home on your land legally. That would permit you to rent out the first house while living in the second.

But let’s assume, for the moment, that you can only have one house on your property. Your property has grown in value and upgrading your home can only help. The real question now is, how much additional value will you bring to the property with a bigger, nicer home? You can find out that answer by talk to local real estate agents who are familiar with land in the area and what it sells for.

It’s possible that you will not increase your land value at all by improving your home. So, then you have to ask yourself the next question: Can I stay in this home as is, or do I need larger living quarters?

If you simply can’t stay in your house because it’s not meeting the needs of you and your family, you can either sell the house and land and purchase something else, or you can spend some money and improve your home.

While I agree it’s nice to be mortgage-free at 40, especially with a handful of kids to raise and college tuition coming down the pike, the point of having money is to make life a little easier. Getting a home equity loan to improve your home seems to make sense.

Finally, take a long-term look at the investment of your land. You have 32 acres, with access to a stream. That’s a lot of land, and it may be more valuable down the line, whether or not you have a house on the property. If you spend $100,000 to upgrade your home now, and live there another 20 years, you’ll pay off your home loan and have a nicer house and the land will probably increase in value.

So, you need to think about these issues and come to a decision. Good luck.

Jan. 19, 2009.