Renovating without overcapitalising

There’s no shortage of home renovation shows on tv; some home grown; others imported in droves from America. And we lap them up; the good, the bad and the downright bizarre. It’s clear that Australia’s love of renovating knows no end and that’s probably because we’re a roll-up-our-sleeves-and-dive-in lot, plus some homeowners view renovating as less expensive than selling and purchasing a new home. Renovating can be a brilliant tool for not only creating a more comfortable living environment, it can also deliver a wonderful financial return when you decide to sell. But like life’s yin and yang, it can also end in tears, as your bank account flows freely out the door. And that’s one of the problems with programmes like The Block and House Rules. Not only do they give the impression that (thanks to the 8000 tradies that make it happen) fully renovating and styling a bedroom and a bathroom in a week is a piece of cake, there’s the equally unsettling inference that spending $75,000 on a bathroom is perfectly alright! Of course, it’s easy to see how this all happens.….it’s not their money! Their stream of cash is seemingly never-ending, as is the flow of buyers prepared to pay way over market value to bathe in tv’s reflected glory. Like the Blockheads or Rulers, we’ve been lulled into a false sense of security that we’ll be rewarded for running amok with our finances. But what we’ve done is to over-capitalise; a term that sees renovators sitting in a corner rocking backwards and forwards sucking their thumbs.
So, what does over-capitalising mean? Over-capitalising is when the cost of your renovation outweighs how much value it will add to your property; aka – over-spending! If you’re renovating your forever home, then you can probably risk a budget blowout because over a longer time frame your property will no doubt appreciate above the property’s value, even with your over-spend. If you’re a ‘flipper’ or looking to sell within a relatively short time frame, then over-capitalising will probably mean you’ll endure a financial disaster.

I’ve enjoyed a lifetime of renovating. I say enjoyed hesitantly, as it’s been more of a love-hate relationship. The love part is self-explanatory. Turning an ‘early terrible’ into a modern, functioning and immensely livable home is so satisfying, even more so when my efforts have been rewarded come sale day. The hate part, well, that’s a little more complicated. My angst has been caused by the ‘unforeseen disaster’ that flies from Pandora’s Box – like when the ceiling fell in unexpectedly, or when the dog broke through the barricade to romp on the freshly lacquered floors. I have however, been super-diligent at avoiding the perils of over-capitalising: decisions and purchases that are out of kilter with my property’s value – like my friend who had no insulation yet blew $8,000 on a swish cooker and $3000 on tiles for his splash back without thinking which would add genuine value. So, how can we ensure we capitalise, not over-capitalise on our renovations? Along the way I’ve picked up a few handy hints, I’d like to share with you.

Your property is probably your premier investment, so it makes sense to maximise it as much as possible. First and foremost, know your property’s value. The best way to do this is to engage a licensed Real Estate Agent to conduct an independent valuation which will determine your property’s value in today’s market. This will not only give you the opportunity to see just how much your property has appreciated since you purchased it, you now have a starting point for your renovation budget. Setting a budget is non-negotiable for without one, over-capitalising is pretty much a given. The rule of thumb is 10% of the market value as your renovation spend. For example, if your property is valued at $500,000, then a good budget to work with is $50,000. It’s good financial management not to spend beyond the upper level of the valuation, or you may find it a struggle to recoup your outlay – and by that time, things have pretty much gone south.
Right, you’ve got your budget and now the trick is staying within it. Knowing your neighbourhood is just as important as knowing your home. Consider the market value of similar properties. It’s not a good idea to spend huge amounts of money when the upper sale price isn’t anywhere near the value of your post-renovation property.

You want your home to be comfortable while you’re living in it and when you’re ready to sell, you want it to appeal to the largest possible number of buyers. Be strategic. Concentrate on key areas; those that ‘sell’ homes: bathroom, kitchen and outdoor areas. Money savers and environmentally friendly features such as solar panels and water tanks are also very popular with buyers. Adding the swimming pool you’ve always wanted might seem like a great idea, especially on a hot summer’s day, but it may not be the buyer magnet you think. I have seen many once-loved pools now lying sad and empty; their framework cracked and decaying or returned to nature as black lagoons courtesy of the high cost of water and maintenance. Major buyer turnoff!

Put time and effort into examining your home’s design and layout. A functional layout is essential, not only for livability, but also for maximising return on your investment. If layout alteration is on your agenda, engage an architect or draftsperson to draw up plans. If you’re thinking big in terms of removing internal walls, you may also need an engineer to ensure you’re not going to compromise your home’s structural integrity. It’s also wise not to renovate a home that might be better off being demolished or adding an extension that just doesn’t work with the original home, or your neighbourhood. You don’t want to stand out for all the wrong reasons. Good advice is a wise investment, so listen carefully and make informed decisions. And when you’ve got that sorted and you’re good to go, engage a reputable builder that you ‘connect’ with; someone who understands your vision – and budget. Having a good relationship with your builder is essential, because there’ll be many frank and open conversations to be had throughout the process.

You might find it a tough task, but don’t personalise everything. Remember you’re appealing to buyers, hopefully lots of buyers and they’ll all have different likes and dislikes. Just because you love that black or orange wall you saw on House Rules doesn’t mean buyers will love it – and you want to attract, not repel. Keep things neutral and be strategic about your appliances and inclusions. The most expensive isn’t always the best. Buy from appliance outlets if you can and remember there are many high quality, interesting items to be found in restorers’ yards. By doing research and with a little online legwork, I’ve bought the most amazing timber for flooring, wonderful windows and characterful doors at a fraction of the cost of new. And avoid expensive tapware, light-fittings and window furnishings, especially if they aren’t in line with your home’s value. With Australia firmly in the grip of the renovating bug, there are so many options available both in-store and online that carry warranties and don’t cost a fortune.

And remember, it’s not all about your home’s interior. Allow money for landscaping and concentrate on the front garden to increase street appeal. Keep it simple. You don’t need to redesign your existing garden or create one worthy of Chelsea Flower Show. Mowed lawns and trimmed edges will do the trick nicely. They’ll also give scope for the new owner to put their own stamp on your property.

Now you’re ready to renovate. We’ve all had our renovation disasters, but careful planning and preparation – and sticking to that budget – will help minimize the tears, maximise the cheers and ensure that dreaded ‘over-capitalising’ term is one that doesn’t apply to you.