Renovating? How to avoid overcapitalising


infinity pool Real Estate Buyer Services
“Fixer Upper. Needs a bit of TLC. Renovators dream”

 

We see the advertising and conjure up all sorts of notions to turn that ugly property into a beautiful palace, whilst anticipating the equity or profits available to us from the sale.

 

Lots of TV shows for renovating make it all look fun and easy to do, but these shows have a script to follow and a behind the scenes crew to help out. In real life, it can be blood sweat and tears when things go wrong and you can end up losing money on your project instead, all that work for nothing!

Overcapitalising on your property basically means to spend more on the renovation than what the market value will be when completed. Alternatively, doing a poor job or hurried work can really put buyers off and not achieve the potential that the property deserves.

Before purchasing you must determine your why?

  • Do you want to live in the property? Renovating for yourself is very personalised, wanting to make your family home a beautiful haven and improve your lifestyle can include structural and cosmetic changes. For example, converting two bedrooms into one grand master suite, adding additional outdoor entertaining with infinity pool. At this level of work and quality there may be a large expense, over the long term, the cost could be absorbed as the property finds its level in the market. However, in short term, the spending may be larger than any gain received.

 

  • Do you want to re-sell or flip the property within a short time frame? Educate yourself on the costs of renovating and never underestimate how much time and skills you have if you want to do some of the work yourself. Up-skill yourself if you require some training. Several hardware stores offer hands on classes for example: how to build a deck. Keep in mind that the finish will need to look as professional as possible to entice buyers. As a rule of thumb, for each $1 spend you should achieve $2 back. Painting, decorating and cleaning can do wonders and can be sweat equity at minimal cost. Keeping a neutral colour palette can allow the buyers to imaging making the property their own

 

  • Do you wish to add value to the rental that you are buying to increase equity in the future?There may be the opportunity to add an additional room, bathroom, or change an awkward layout etc. These structural changes can help add value, improve yield and create your own depreciation as you hold the property.

Don’t buy the property at the already renovated price! Do your research well, using comparable properties (like for like) in the same area within six months. Check what is desired in the area and match the level of quality of these homes.  Going to open homes to get decorating ideas and listening to what buyers say is a great way to find out what they are attracted to. Always employ a building and pest inspector to find out as many problems with the property before you purchase so you know what to expect, it is a cost that saves you money in the end. No one wants to unknowingly buy a termite infested renovator!

 

Which property you purchase will depend on your budget and how much cash flow you have available for the work to be completed, wisely factor in some additional finances in case unexpected issues arise. Time is very forgiving to overcapitalisation if you make a mistake. Tony Kelly, managing director of Property Valuers Herron Todd White in Melbourne puts it: “There’s no wrong value; it’s just a matter of how long you want to wait to get your price.”

If in doubt as to the best ways to find out what buyers like or which areas of the property to focus on to create value give your local Real Estate Agent or Buyers Agent a call, they can usually have a look and put you on the right track.

 

In Brisbane call Real Estate Buyer Services on 0420 654 325.

 

By Mandy Gladwin

 

 

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