Picture this: You go to sell your home only to find out it’s not worth what you’ve spent on it. Your worst nightmare, right? Working out the balance between wise improvements and spending too much is a dark art. How much will your home be worth after it’s renovated? Will you lose money if you decide to sell too early? What renovations yield the best returns? Is it even about the money?
Upfront research is the key to calming your nerves about overcapitalisation. That’s why we’ve put together a step-by-step guide, as well as some other discussion points, to get the ball rolling.
Dream home or stepping stone?
Are you renovating for long-term comfort or for profit? How long you plan to stay in your home (after you’ve renovated) will help you decide which changes you’d like to make and how much you’re comfortable spending.
1.Start by putting together an old-school ‘pros and cons’ list of what works at your place and what doesn’t. Include whether you like the area, the community, proximity to schools, work and amenities.
2.Chat to a reputable builder and get them to give you a ballpark cost for the changes you’re considering. Remembering you’ll need to include additional costs like architects’ fees and building consents if you’ll need these.Builders Crack has some rough costs on their website you can take a look at too.
3.Get busy with some market research, looking at properties for sale in your area. Find out what you’d get for your place by meeting with real estate agents or valuers to get an ‘as is’ estimate and an ‘after-renovation’ price on your home. The bank may ask you to do this anyway if you need their finance to do the work.
Once you have all the above information, you’ll have a better idea of whether you’ll be able to get your money back when you sell up or whether you could be overcapitalising.
Overcapitalising or a lifetime of comfort?
It’s ok to overcapitalise in the short term if you’re planning to live in your home for a while – the capital gain you make when you finally sell up will likely absorb your renovation costs. You can’t put a price on the comfort and happiness you’ve enjoyed living in a beautifully renovated home.
Renovating your home isn’t always all about return on your investment. Committed homeowners often take the opportunity to do improvements, which further enhance the liveability rather than the value of the home.
Return on your investment
If you want to make money on your place (and don’t plan to stay long) then minor improvements might be the way to go. Updating elements like wall and floor coverings, light fittings, your outdoor space, or adding a deck can make a big impact without the hefty outlay.
If you don’t have plans to move out in the near future, experts say by converting a three-bedroom home into a four bedroom, you should get double back what you’ve spent; kitchen and bathroom upgrades typically return 1.5 times your investment.
Some investments like swimming pools don’t ever pay off – they’re very expensive to install and many buyers are put off by the idea of having to maintain them.
If you’d like to chat to us further about the steps above or a project at your place, get in touch today.