Do you really need that renovation?
If your property is in need of repair or you’re considering just a few renovation projects to get it ready for sale, there are a few things to consider first so you don't over-capitalise.
It all comes down to your return on investment or ROI. Basically, you’ll want to ensure the amount you invest in the renovation is less than the value you’re adding to the property. Here are examples of where we wouldn’t recommend renovating if you’re looking to maximise your sale price.
IF MARGINS ARE THIN
If your property isn’t in desperate need of repair, and you’re confident you have quite a bit of equity existing in your property, then renovations may not be necessary — especially if, after crunching the numbers, you’re not confident you would be increasing the sale price by that much. And, remember, a return on investment cannot be guaranteed.
IF THE RENOVATION WILL PERSONALISE THE HOME TOO MUCH
Some renovations appeal to most buyers, such as upgrading kitchens and bathrooms, but others can be quite personal to you and your needs, taste and style. These are less likely to appeal to the largest number of potential buyers and should be avoided. This can include adding extensions such as granny flats, converting bedrooms into specific-purpose rooms such as a media room or library, and separating rooms by adding additional internal walls.
IF YOU NEED TO SELL QUICKLY
Renovations take time, both to plan and budget for as well as to be completed. So if you’re looking to sell in the near future, renovations simply may not be possible. Remember that renovations often go over budget and can take longer than first anticipated, so factor both of these considerations into your decision.
IF THE RENOVATIONS WILL COST MORE THAN 10% OF YOUR PROPERTY’S VALUE
A general rule of thumb when it comes to renovating a property for profit, is to spend no more than 10% of the property’s value on the renovations. So, the first step would be to ensure you have an up-to-date valuation of your property, performed by a professional. The next step would be to work out a budget, and ensure you add a buffer in case of unforeseen additional expenses. Using the 10% rule, this means a home valued at $500,000 would have a total renovation budget of $50,000 plus a buffer amount. Much more than this, and you risk over-capitalising.
IF THE RENOVATIONS WON’T SUIT YOUR TARGET MARKET
This is why doing your research is key. What is the demographic of your property’s neighbourhood? Mostly singles and couples? Mostly retirees or mostly families? Finding out who the neighbourhood is likely to attract will help you determine suitable renovations and not so suitable ones. For instance, if your local market is likely to attract families, think carefully before adding stylish but potentially hazardous staircases, or ornate glass features.
ASK IF YOU’RE UNSURE
When planning a renovation, don’t shy away from asking your real estate sales consultant on their opinion of the condition of the property, the type of buyer the home is likely to attract and any renovations they would recommend. You may be surprised. If your home isn’t in need of massive renovations your sales consultant will tell you and you may save yourself a lot of hassle, time and money