September 24, 2013
It’s that time of year when the renovation-mania takes hold.
A recent Mortgage Choice survey found two out of five (43%) Australians are planning home renovations with key projects being kitchen and bathroom upgrades (28% and 27% of respondents respectively) followed by a revamp of outdoor entertainment areas (15%).
The main motivator for renovating is enhanced lifestyle (77%). A further one in five (22%) hope to make money from their improvements, while the remainder chiefly need to make room for a growing family.
Funding plays a key role in the success of any renovation, and there are various options to consider such as a loan top up, personal loan, line of credit or a construction loan.
Home equity can be a valuable resource, potentially opening the door to low cost financing. Talk to us to see which funding option works best for your renovation project.
Look at the area you live in and see the most sought after features, is it the open plan living, outdoor space or the dream kitchen.
When renovating for profit vs lifestyle the two key things to consider is time and money.
Creating a timeline of when to put the house on the market should be forefront in your plan. Whether it’s six months or three years, you need to have this structured into your plan. Working on trends that are present now may not be relevant even in three years so planning any features and structural changes need to be relevant to the selling market. If you are selling in three years, hold off your renovating till atleast twelve months before hand, that way you are sure what you are doing is more relevant to the current selling market. Budget allocation is key to getting the most money back for your investment. Put priorities in the areas that are going to give the most impact and wow factor on time for open inspections.
If you plan to renovate while living in your home over a prolonged period of time (longer than 5 years), you need to consider how you want to live, what your priorities are and whether good quality flooring and appliances is the key to getting the quality of life you want in your home. Setting a goal to do this is important as most people end up procrastinating for a couple of years, spread the renovation over a couple of years and wind up living in a part finished house before selling. Have someone else set a frame work for your renovation, like a builder or designer, so you can get to enjoy the home you live in. Renovating for your own lifestyle is about putting the money where you get the most enjoyment – an open fireplace and good quality cabinetry gives a luxury feel to a home. Features like this are costly so don’t expect to get your money back within three years if you decideto sell. Putting your money in your home for lifestyle is about what enjoyment you’ll get back in that time frame rather than measuring in dollars.
What’s meant by overcapitalising?
A: Overcapitalising refers to the situation where the cost of your renovations outweighs the value the renovations add to your home. It can prove a real headache if you’re renovating with the aim of selling to make a profit. For homeowners, overcapitalising may not be such a problem but it can mean having to hang onto the place until market values catch up with your outlay.
The risk of overcapitalising highlights the need to carefully think through home improvements. A local real estate agent can give you an idea of projects to avoid – like unsympathetic renovations to character homes. Or seek the advice of a quality architect or builder.
What are ‘construction’ loans?
A: Unlike a traditional mortgage, which involves borrowing a single lump sum on which you pay interest from day one, a constructionloan provides funding through a series of drawdowns in line with various stages of a major renovation or new build. There are several benefits to ‘drip feeding’ your loan this way. Firstly, you only pay interest on the funds used and repayments tend to be interest only until the project is complete, making a construction loan a budget-friendly option.
In addition, the loan structure means you payyour builder in stages for completed work andthis can provide a degree of financial protectionagainst any incomplete or poor workmanship.
For more advice on funding your reno - please call me today on 0414 259 699