BY THE REAL ESTATE INSTITUTE OF QUEENSLAND (REIQ) CEO ANTONIA MERCORELLA
Since the onset of the pandemic, we’ve experienced an extraordinary renovation boom. The number of loans and the amount of money spent on beautifying our homes has skyrocketed, perhaps in part because we’ve not been able to travel and we’ve been spending a lot more time at home.
As a result, the average household has about four years’ worth of savings up their sleeve, and in many cases, these savings have been funneled into improving our lifestyle at home through property renovations. So, if you’re thinking of undertaking a home renovation, this column will cover some key considerations to weigh up.
THE RISK OF OVERCAPITALISATION
The most important thing when planning your home renovation is to make sure you’re not overcapitalising. Put simply, overcapitalisation happens when a renovation costs more than it ‘makes back’ in added value. It’s very easy to get carried away when it comes to making improvements to our own homes – particularly if this is your potential ‘forever home’ rather than an investment property. However, either way, the right renovations can turn your house into a cash flow positive property or simply help you better enjoy living in your home.
Regardless of what kind of renovator you are, most of us would agree that it’s best to avoid spending money on our property (whether it’s the initial purchase, or spending money on improvements and renovations) that’s not able to be recouped down the track if and when we eventually sell.
TIMING
The timing of your renovation is another key factor. At present, there’s potentially an increased risk of overcapitalisation as interest rates rise, the sales market stabilises, and the cost of building and labour rises. Not to mention that tradespeople are still in high demand and are therefore rare as hens’ teeth at the moment, meaning you’ll need to do your get your ducks lined up well in advance and consider having a contingency plan for materials or trades shortages. Given you’ll potentially be paying top dollar for your renovation, you may want to consider, is now the right time for the type of renovation you want to undertake?
HOW MUCH IS TOO MUCH?
Start by setting your budget. The general rule of thumb that many still use, is that cosmetic renovations shouldn’t cost more than 10% of the current market value of your home. For this, a good starting point is to seek advice from an REIQ-Accredited Agency. They can provide you with a current appraisal for your property as well as solid insights for where to concentrate your renovations. An agent can also provide information on median house prices and a comprehensive sales history for the locality of your property. To help back this up, local comparisons are a valuable guide too – that is, if you can buy a completed property in the area for equal or less than the combined current value of your property plus renovation costs, it’s definitely not worth the investment if your intention is to sell in the near future. In this case, adding value to your home should be based on what the market is willing to pay which is why doing your due diligence and understanding the market at the time and where it might be headed is critical.
CONSIDER THE FUTURE BUYER
What else is important to take into consideration is your future buyer. Analyse what type of buyer your neighbourhood attracts – is it young couples, families, local or interstate investors? Factors that influence their purchasing decisions differ, but what they do share in common include affordability accessibility and local amenities. And what they look for in a property also varies – from new builds on larger blocks through to established housing with the potential for ‘flipping’ or good investment returns, and affordable homes for first-time buyers. This will help target the price point you want to achieve with your home renovation, the investment you need to make, and the buyer pool looking for what you’ll have to offer.
WHERE TO CONCENTRATE YOUR RENOVATIONS
Unfortunately, the cost of any improvements you make don’t always automatically add to the value of your home and translate to a higher valuation. This brings me to the final question in the home renovation equation: Where to concentrate your renovations? To answer this, I need another column, so stay tuned for my next column where I’ll tackle this question in detail.
