Australians love a home project and are spending more on renovations each year, so as the trend continues towards renovating – rather than upgrading, to adapt to the softer property market, borrowers really need to maximise any money they outlay to ensure those funds are put to good use.
Borrowers need to be savvy about exactly how they spend their money on renovating, so there is a genuine financial advantage to their decision to retain and improve their existing property, rather than move on.
There’s no point deciding to go ahead with a renovation unless you have weighed up all the benefits of renovating over upgrading.
Your analysis should include determining whether you really are comfortable and ready to give up not just the property, but all the other reasons you live there – including familiar infrastructure such as local schools and transport links, not to mention friends and neighbours.
That’s the more emotional side of the equation. But then you also need to be realistic and crunch numbers on all the possible outcomes of buying and selling in the current market.
In the end, if you do finally decide that renovating is the better option for you, you need to be careful about how you spend your money by developing a blueprint to follow, based on finely costed, definitive plans.
One of the main issues that will determine how you spend your budget will be the primary reason you are renovating – i.e. is it to on-sell; improve rental yields; or improve your lifestyle?
There is generally less emotional attachment to renovating an investment property than one you will have to live in, but ensuring you have improved the property in both functionality and value – without over-capitalising on your spend – should always be the prime objective.
Then it will come down to whether the renovations are mainly cosmetic or structural.
If the renovations are largely cosmetic, there is a lot less to consider. It’s when you get into the structural type that you really have to do your homework by ensuring that any additions are in character with surrounding dwellings and that it will add to the resale value, among other things.
For larger projects, despite the reasons for renovating, the planning should still come down to considering 12 key points:
- START WITH A LIST: Make a list of everything you want to do, not just in one room, but around the rest of your home too, then prioritise that list. This will allow you to decide whether you can stage the renovation, or whether you’re better off to do it all in one block of work. Once this is done, you can seek more detailed advice from architects, draftspeople and builders.
- SET THE BUDGET: Work out how much you actually have to spend and ensure if you are borrowing the funds to do this they are firstly approved and that you’re comfortable with the additional financial responsibility you will be taking on. Also, if you are significantly changing a layout or adding floor space, ensure your plans comply with any council regulations and allow sufficient time and money for any plans to be drawn up, submitted and approved.
- OBTAIN COMPETITIVE QUOTES: Obtain at least three quotes from reputable builders and tradesmen and ensure the quotes compare like for like. And then, even when the quotes are accepted and contracts are finalised, ensure you have a contingency budget. Speaking to others who have project managed renovations beforehand will be a wise investment of your time.
- THE DIY FACTOR: Despite the popularity of home renovation programs, very few have the skill and experience to do everything themselves. Sure, you can save some money by putting your own sweat into it, but ensure any specialist jobs are carried out by licensed tradespeople.
- INSURANCE: Ask about insurance for each tradesperson as anyone working on your property needs it. Otherwise the liability may rest with you.
- KEY AREAS OF THE HOUSE: Any buyer routinely pays close attention to the state of bathrooms and kitchens, mainly because they’re high-traffic areas. As a result, these rooms can justifiably take up a significant portion of your budget, as long as you don’t go overboard with costly appliances that won’t be appreciated within the context of the rest of the property.
- POOLS: Swimming pools may seem like a luxury but won’t always increase the resale value of your home, particularly if it overcrowds the rest of your outdoor area. Balance out your own need for a pool, rather than just installing one because you think it’s a property must-have.
- GARAGES: A garage can add considerably to a home’s value, as can any off-street parking facility, particularly in high-density, metropolitan areas. So whether you’re renovating an investment property or your own property, the addition of a car space is usually a wise one.
- ADDING BEDROOMS: This will also generally add to a property’s value, particularly if the property is in a family-friendly area. However, there’s no point creating a bedroom for the sake of it, if it’s so small it’s more likely to be used as a utility room. Buyers can readily see through this.
- PAINTING can make or break a renovation. Good paintwork can instantly lift the overall quality of a house as can the level of preparation that goes into the job. Don’t underestimate the power of the paint – it can transform even the drabbest of homes.
- COLOURS AND FINISHES: Keep your overall look co-ordinated and simple in taste, particularly if you’re looking to sell in the near future. A consistent, muted style that flows from room to room is safer than something that’s too niche and stands out for all the wrong reasons.
- LANDSCAPING: The indoor/outdoor room is now a popular part of the Australian lifestyle, so allow for a percentage of your overall budget to be spent on landscaping so you can complement the work you’ve carried out inside the house. Even if your budget is modest, basic greenery and clean, functional outside areas will only improve a property’s appeal.
(Article by Lisa Montgomery, CEO of the non-bank lender Resi Mortgage Corporation. First appeared in www.propertyobserver.com.au)