 | Which renovations pay off? |
FatCat.com.au | 22 Sep 2008 | Lynelle Johnson
Not all property renovations add value. In fact, some property renovations do absolutely nothing for the end sale price of your property. So which property renovations pay off and which don’t?
The big question is: are you going to live in the property or are you intending to rent it out?
If you are going to live in the property by all means renovate for your own comfort. But watch out: unless you are within 18 months of selling up, any renovations could be a complete waste of money.
“There is nothing more tragic than the recent past”, says Peter Cerexhe, author of Smarter Property Improvement. Granite bench tops (overdone), glass splashbacks (over), stainless steel kitchens (everyone’s sick of the finger marks) and little expensive glass tiles (very over). Yes, simple good taste is best.
So if you own your home and are thinking of renovating to upgrade it before sale – or even if you are turning over an investment property - here are some golden rules.
Know your market
If you are a devotee of the British pay TV programs like Property Ladder, you will already know the major mistakes investors and renovators make:
• Renovating in their own taste and not looking at the tastes and needs of potential buyers
• Taking too long to complete the renovation (time is money)
• Going way over budget
The best way to gauge the renovations most likely to work in your particular suburb is to attend open house inspections. It’s important to check out the quality and price of your competition. Secondly, it might be worthwhile paying for home price reports from organisations such as Residex.
These 12-month postcode reports on your chosen area cost $90. The reports clearly state such things as sale price, the number of bedrooms and bathrooms of the property and so on. Then spend some time driving around comparing your property to those highlighted in the report.
The old adage of buying the worst house in the best street still holds true provided you understand the market, don’t over-estimate returns to be made, and do the ‘right’ renovation. Simply put, if your home is currently worth $700,000 and the best house in the street sold for $800,000, then renovations over $100,000 are risky.
Renovations that really pay off
Cerexhe advises renovators to spend time looking at the floor plan and thinking about what people want out of their property today. “Currently, people want their home to be a haven from the trials of ordinary life,” he said.
In the past, classically beautiful historic homes fulfilled their purpose by having large front yards denoting status. Today Cerexhe says it is all about privacy and security. Translated this means a high screening wall to the street, private backyard living spaces and decent-sized bedrooms and bathrooms. Pulling down or erecting a wall doesn’t have to cost a fortune either.
People these days tend to hoard a lot of ‘stuff’. Good storage, therefore, is particularly valued. Off street parking, and enough room for two cars is also desirable.
Cerexhe suggests that if you have an inner city home with an extension out the back – why not pull it down to incorporate storage and parking. “In Sydney and Melbourne there are Victorian terraces that don’t get the prices they should for the location. The issues are parking and storage and privacy,” he says.
If the property is being renovated for the rental market, Cerexhe advises: “Think with your head not your heart.”
“Investors like more than one bathroom as rental tenants are likely to want to live independent lives. Rather than do up the existing bathroom look at how you could put in a second bathroom.”
Buyers are pretty astute these days so a coat of paint no longer does the job.
Where the real money is
Speed is the essence when renovating for profit. When interest rates are high, any spend needs to take into account the ‘carrying costs’. Professional renovators like to get a return on every dollar spent – of somewhere between $3 and $5.
But don’t assume that easy money can be made from renovations. According to Cerexhe, only the top end - ‘where there is an insatiable demand for luxury’ - is ‘real’ money made. And by ‘real’ money we mean not just a capital gain but money to substitute for your day job as well.
However, the capital gain is only one way professional renovators make money. The other is in depreciation for tax purposes. Different household features depreciate at different rates – cupboards depreciate slower than what could be deemed ‘repairs’. A good accountant is therefore essential.
Cerexhe’s tips on various rooms
Kitchens and Bathrooms: keep it plain and functional.
Creating new space: look for ways to achieve privacy and security.
Decks: Make sure it really adds to the home and be wary of DIY timber numbers.
New Windows: since windows have improved in quality over time, it’s can be worthwhile updating them.
Swimming pools: interest in having a pool has probably peaked and is on the way down.
Designer gardens: neat and tidy is good. Since fashions change, don’t be left with an expensive mistake.
