Where you live, the type of addition you want, and your home’s style are factors that can impact whether you should build up or out on a home. However, it is generally more cost-effective to build up. This has a lot to do with how a second story is built. While installing a second story may require you to relocate for a period of time, building out would mean excavating a new foundation. If your current foundation needs to be retrofitted to support an additional floor, this may raise the price of that addition.