Long before you start thumbing through colour swatches or paint charts, it pays to understand why you are renovating.
Home improvements can fulfil a personal need such as extra space for a growing brood. Nonetheless, you may want to sell the property at some point in the future, so it makes sense to plan your renovations so that they increase the market appeal – and market value – of your home.
Alternatively, you may be planning renovations in order to secure a higher bank valuation. This can call for a different set of ground rules. Under these circumstances, you may want your property to look as good as possible while minimising the cost.
Whatever your strategy, five factors should be addressed in your renovation plans.
What does the market want?
A golden rule of renovating is that it’s not just about you. Always bear in mind what would appeal to buyers. Think about the nature of your street and suburb. Is it dominated by families, who may be interested in a 3 or 4 bedroom home with extensive living areas? Or does the location appeal more to couples or even investors, who may be looking for a low maintenance property?
One of the best ways to be sure your proposed improvements appeal to a broad cross-section of buyers is to speak with local real estate agents. They can explain what’s in demand in the area, and what will turn buyers off.
Which renovations will pay a tidy return?
A big hazard of renovating is overcapitalising. It can occur when the cost of the project exceeds the value it adds to your home. When a modest home is renovated to the point where it becomes the best in a street, odds are it’s been overcapitalised.
But it’s not just about how much the property is improved. It’s also a case of knowing which improvements add real value.
Research shows 65% of Australians will pay extra for air conditioning, 60% for a carport or garage and 33% are happy to pay more for a home with solar panels. But fewer than one in five buyers will pay more for a swimming pool1.
The value you add also hinges on the cost of renovations. A major structural addition such as a second storey can be expensive, often calling for council development approval and possibly an architect. The greater the cost, the easier it can be to overcapitalise – and that’s critical if you’re renovating to sell.
Simple renovations, particularly cosmetic improvements like replacing worn carpets or installing new light fittings, can often be completed on a tight budget. Yet they can add instant appeal and value to your home without the headache of a major project.
Is the G-factor an option?
One renovation you may be considering is the addition of a granny flat. It’s a growing trend as the combination of housing affordability, our ageing population and increasing multiculturalism fuels multi-generation living2.
But will a granny flat add value?
Since 2013, changes in planning laws have made it legal to publicly rent out granny flats in a number of cities, including Perth. So it can be a way to earn additional income, which may appeal to some home buyers.
However, granny flats can also be surprisingly multi-purpose, acting as a home office, guest accommodation, teen retreat, or simply providing additional storage – all of which can add value to your home.
The downside is that a quality granny flat can cost upwards of $100,0003. It’s a major outlay, and one you need to be sure will be reflected in an uptick in your home’s value. It all comes back to speaking with local real estate agents to gauge whether it’s a good idea for your location.
Are you able to add plenty of “wow” for not much cash?
If your renovation is pitched largely at boosting your home’s value, it can be worth sticking to improvements that deliver plenty of bang for your buck.
Money spent on rewiring for instance isn’t visually obvious. But re-tiling, polishing floorboards, a fresh coat of paint or new carpets can instantly lift the look of your home. So can other projects like adding built-in robes to add extra storage space. A garden makeover can create instant curb appeal.
How you will fund the improvements?
A well thought-out renovation addresses how you’re going to fund the project.
Depending on your financial position, you may be able to use home equity to cover the cost of works. The beauty of this option is that cash savings can be kept intact for other uses (like unexpected emergencies). Or you could use a construction loan that lets you draw on funds as they’re needed when various stages of the project are complete. It’s especially useful for large-scale renovations, as you pay interest only on the part of the loan drawn down.
One of the best ways to explore your options is by speaking with your local Mortgage Choice broker, who can walk you through the different strategies available. That way, you can be sure your finance choice fits your budget just as well as the renovations suit your home.
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2McGrath Report 2018