With the recently announced government grants for home renovations, more and more people are considering their options. Even if you aren’t eligible for the grants, now is a good time to get some work done, as you’ll have more time to organise tradies, or even do the work yourself. With this in mind, we thought we’d give you some home renovation tips. It doesn’t matter so much whether you’re renovating the home you’re in or an investment property, although there are some minor differences — ultimately the principles are the same: make sure you get value for your money, and don’t blow the bank. Now, on with the tips!
1. Know Your Numbers
The general idea of renovating is to increase the value of the property, so have a think about what role that particular piece of real estate plays in your property portfolio. Are you renovating to make it more attractive to sellers because you want to put it on the market soon? Are you holding onto the property but want to increase its value for investment/financing reasons? Do you live there? Each of these scenarios will give you a slightly different focus for your renovation plans and budget.
If the property that you’re renovating is a rental, consider talking to your financial planner. See if they think that you’ll need to draw up any new reports or a new depreciation schedule. Don’t forget to keep receipts as well, as you’ll need them for your records to offset capital gains when you come to sell.
2. Know Your Target Audience
Maybe the in-wall smoke machines are a really good price, but are they something that a new or young family are looking for in their home? Probably not. Focusing on improvements that will make your property more appealing to your target market will ensure that you get the most return on your investment.
There are also a lot of factors that can affect what the upper ceiling of a property’s value might be: location, number of bedrooms, school zones, proximity to supermarkets or other services. If you put a property on the market at 50% over the current average price in the area, what would make someone want your property, and not one in the ‘nicer’ area of town, where the houses cost the same as yours? If you’re not sure, it’s best to keep your expectations in check — we’ll discuss this in more detail shortly. Basically, you don’t want to be the one holding the property that everyone is talking about for the wrong reasons.
As a counterpoint — if you’re renovating the property you live in, ask yourself whether these changes are likely to make the property more difficult to sell when you’re ready to move on. How many houses have you looked at where you’ve been turned off by a strong structural design choice, or a choice that will be expensive to change? Try and keep the grand personal touches to furnishings or easily changed features, like paint colours.
3. Plan your budget, and budget to your plan
We all know that planning a renovation involves a little more than just picking how much you’ll have to spend. As there’s no limit to how much you could potentially spend, it helps to be a little disciplined. The obvious areas for renovation are the kitchen and bathroom/s, so that’s probably where the majority of your money should go. Look around online at renovation blogs and see their expenditure breakdown by room/house area. When you’re budgeting, keep a reasonable percentage for overall improvements to the property (rather than planning every room down to the last dollar) so that you don’t get caught short.
Know what your property is worth, and know what you can likely make it worth. While you can probably buy a $200,000 house and spend $300,000 on it, there’s no guarantees that that will make it worth $500,000, or that anyone would buy it for that anyway. For this reason, a lot of investors recommend keeping your renovation budget to around 10% of the house’s current market value. If the property is expensive you might have a little more play in the numbers, but you wouldn’t go much more than one or two percent higher. If that only leaves you with a small budget, you can stretch it a little further by being creative. Work with the bones of what you have rather than planning grand redesigns. Keep an eye out for bargains — you’ll be surprised what a keen eye and a bit of patience can do.
4. Don’t Overestimate Your Abilities
There are probably some things that you’re amazing at, but sometimes it’s worth leaving the complicated jobs to the experts. You need to be realistic about what you can and can’t do, and how that will impact your budget. There probably isn’t too much harm in having a go at painting the walls, but tiling or concreting are different propositions. Remember that if you try and fail, you’ll not only lose the initial materials, but you’ll still have to pay the professional to do the job you wanted in the first place. Plumbers are expensive. Electricians are expensive. They’re both important. Make sure you can still pay them.
Home renovations can be a great way to improve the value of your property, and if you’re savvy, they can be a wise investment with a high return. The important thing is to resist the urge to get carried away and spend too much money, or money in all the wrong places. Remember that you’re improving the property to increase the value and make sure that the house suits its intended market. The odds of someone wanting an outdoor pool somewhere where it snows in winter is probably minimal. Plan your renovation ahead and stick to your budgets, and you’ll no doubt see a strong return on your money — and the time spent planning!
