If you own your own house or apartment, you may arrive at the stage when you’re thinking about renovating. Perhaps you're desperate to get a new bath in your bathroom, more space in your kitchen, or your family might be growing and you need to tack on a couple extra bedrooms.
But according to Money Magazine editor, Effie Zahos renovating then immediately selling a house is not as simple as it was a few years ago.
“It's not that easy now. The market is softening,” Effie told Kinderling. “People are much savvier when they're looking at property. They're not just looking at the house, they're looking at the suburb, the street and then getting to the house asking, 'what can I do?'”
Subdivision and granny flats are also becoming more common, according to Effie, so your potential buyer will be looking for things like council approval and rear lane access.
“They're not just looking at the house … it's also 'well what can I do to develop this to the next level and really get more bang for my buck',” she said.
Once you’ve decided to renovate, Effie suggested you sit down together and ask yourself the following questions.
1. Profit or heart?
“Decide on what do you actually want to achieve here,” said Effie. “Are you renovating for profit, or are you renovating for love, which is very, very different.”
As in, are you hoping to stay in this house for as long as possible? Or are you looking at it as an investment that you’re going to flip anyway? Considering your long-term goal for the house is important.
“If it's a structural renovation then there is no point in doing things that you can't see. You want your most bang for your buck, so you want a lick of paint, you want maybe a nice little light and so on. Overspending on that you're not going to get your money, but if it is for 30 years - indulge a little bit,” said Effie.
2. What changes will bring the most value?
Making improvements does affect the overall value of your house or flat, and previous adjustments to a house will always give you a bigger return when you decide to move on.
“Most experts would say for every dollar you spend, you want at least two dollars back,” said Effie. "But then you get to, where should this money be spent?"
“In most cases if you renovate the bathroom and the kitchen, a 10 percent increase in value is almost certain, especially if you hold it for a little while.”
“A great website to go to is the ARCA Centre website and they have these great fact sheets,” Effie recommended. “It doesn’t cost you anything and you'll get a costing report which I find so helpful.”
Listen to Effie on Kinderling Conversation:
The average person will spend $10,000-$25,000 on a bathroom, $12,000-$30,000 on a kitchen, and $5,000-$10,000 on a laundry (just remember this doesn’t include white goods).
“Surprisingly the bathroom seems to be the one that gives you a better return. People look at bathrooms very seriously, the layout, the function, is the toilet hidden there?” Effie explained.
Pools can increase the value, but it depends on the suburb. Some people see a pool as a lot of work and it devalues the property, but others think it’s great, especially those with young families.
3. How are you going to finance it?
“The budget is king on this and quotes, quotes, quotes. Make sure to add on 10 or 20 percent above the budget, because you will always blow it,” said Effie.
“Renovations are fraught with danger because you don't really know what you're dealing with until you get in there. A big cost with renovating is the finance side, so you want to make sure you get that right.”
Top up loans, construction loans, bridging loans, lines of credit and personal loans are all options for families looking to renovate.
“You definitely don't get a credit card. There are a number of ways you can finance and, in most cases, progressive loans will probably suit people,” said Effie.
“That’s because if you're doing some structural renovations and you get approval for $100,000 but you're not going to use that money straight away, there's no point drawing down a hundred thousand dollars and paying interest on day one. Instead, you should progressively draw it and pay your builders or your tradespeople as you go.”
4. Will you stay during the renovations or rent elsewhere?
“In most cases we don't have the luxury of saying ‘should I move out or not,’” said Effie. “And rent is 'dead money', on top of renovation costs and paying a mortgage on the house being worked on. Personally, being so tight with money, I would live through a bathroom reno, a kitchen reno, easy,” she said.
Effie also warns that it can be expensive to pick up and move because of stamp duty and selling costs, so many people use that money to renovate an existing home, to get value out of that area.
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