One of the most attractive qualities of real estate, as an investment, is the fact that you can manufacture your own equity. That simply means you’re able to do something to your property to increase its value. One of the most popular ways to do this is through a renovation.
While a renovation is simple on the surface, it can quickly grow into a project that takes a lot longer and costs a lot more than you had intended. Fortunately, there are some things you can do to effectively budget and plan for a renovation to make it a worthwhile endeavour.
Start with the end in mind
The first thing you need to understand about a renovation is that just because you do it, doesn’t mean it will make you money. In fact, many people quickly discover that the renovation they have done hasn’t added anything to their equity. When looking to see whether a renovation is worth doing, you need to see a large difference between the value of renovated and unrenovated properties. Look at recent sales data from your surrounding area or talk to agents to see what that difference in price might look like.
When you do a budget for a renovation, the numbers often look quite appealing. It’s only after you dig a little deeper that you might find your costs are a little higher than initially anticipated. Aspects often missed by new renovators are transaction costs. Things like stamp duty, settlement fees, sales fees, and even holding costs can mount up quickly. If you already own the property and if you intend to hold it, this can reduce your costs and make the project more viable.
While it’s nice to make your home into the most impressive house on the street, you shouldn’t overshoot the mark. Most potential buyers will be looking around the median price. Therefore, it is important to take into account, that higher priced homes are harder to sell as would-be buyers often look for a location first and home second and will eye off properties closer to the CBD.
Manage vs outsource
When it comes to executing the renovation, you can hire a company to project manage or you can do it yourself. You can save a lot of money by doing it yourself, and your role is simply to source the materials and the trades. You will need to understand what things need to happen in what order, but you might be able to reduce your costs by 50%.
Get multiple quotes
It’s always a good idea to get three quotes for each part of the renovation. That includes materials and trades. Don’t always go after the cheapest price as you want someone who can do a high-quality job on the project.
Look to add value
Just because you put in a new kitchen or bathroom doesn’t always mean the property will go up in value by more than the cost of the work. A great way to spend your money is by doing things to the property that add size or space. Converting a laundry into an ensuite or second bathroom, turning a carport into another room or knocking out a wall to open up a living area are things you can do that generally add a lot of value and appeal to a property, over and above their cost.