There are some basic questions you need to ask yourself every time you go to renovate a property.
Take these basic steps to avoid pouring your money down the drain
1. Consider the reason you are renovating
Is it your principle place of residence (PPOR) and you want it to be nicer?
Danger Zone Renovating - you are tempted to spend way too much on the property. 43% of Australians moved house over the last 5 years - so be careful and don't overcapitilze.
Your rental property and it’s a bit tired? - Sounds like a low cost pretty up to me - aim to make every dollar you spend make you $4
You want to renovate and flip for cash? This reason requires you to be ruthless with your budget - work out what it is from the steps below and stick to it - don't deviate because something looks pretty!
All of the above are valid reasons for renovating but you need to make sure you don’t over capitalize on your property – even if is your PPOR
2. What is this property worth now as it is?
It is important to know where your starting point is. You need to get an accurate value so you know your base line
Where can you get this information? -
- Get a local real estate to give you a guide
- Visit some open homes around the area and compare your property
- Hop on line and check out the sold prices see http://www.realestate.com.au/sold and www.rpdata.com.au
- Get a valuation done - This costs money and you really don't need to go to that much detail but you may have one for a recent bank loan
3. What are the prices of renovated homes in the area?
You need to make sure there is a gap between where you are and what a renovated property would achieve.
Check the same resourses as above but this time take special note of what renovated properties in your area are selling for
- Inspect / research renovated properties by the same methods as above
- Make sure you are comparing apples with apples
- Make notes on what the properties have to make it easier to compare
- For your rental property look at rental returns on renovated properties
Now if there is little or no increase in price between the two properties - or if you have a rental property and need to tidy it up to improve renta You need to stop there and look at no 5 for value adding ways
4. Is there is a gap between renovated and unrenovated?
You need to look at what these renovated properties are offering?
- Is it a new kitchen and/ or bathroom?
- does the price go up quite a lot for adding an extra room in your neighborhood,
- is it the ensuite that is pushing the price up?
This is where some due diligence with a few agents will pay you dividends - they know what is in demand!
You should be looking at spending no more than up to 10% of the property price on the renovation. Do your sums and make sure that you are spending a lot less on your renovation than the value it will add.
Value of your property now
Plus your renovation costs = New Cost Base
Subtract this from what RENOVATED Properties are selling for is your area
The Gap is your PROFIT
BUT its my PPOR - If you are sure that you will not be moving by all means add a few extra nicities but remember your house can be a great investment if you treat it as such
5. What do I do if there is no gap ?
There are still things you can do to increase the rental return or salability of your property but they are very cosmetic and very basic. You should not spend more than 1-5k for example (preferrably 1-2k for a rental property)
Clean up and declutter,
A coat of paint or maybe just sugar soap will do?
Clean the grout in the bathroom or if it's really bad get it redone
A new vanity only costs $3-400
Paint the kitchen cupboards or maybe just refinish the bench
New Handles are a cheap and chearful way of adding some zing
Mow the lawn
Weed the garden - Free if you do it yourself but still a cheap and powerful way to intice a new tenant or buyer
Get rid of the rubbish around the house
Replace the blinds or curtains.
Make use of your Reno Save card to keep the costs down.
These are the findings of those of us at Reno Save and we hope they have helped you - please do your own reasearch