If you are thinking of selling and your property is in need of repair, or you’re considering a few renovation projects before selling, there are a few things you should first consider.
Whilst a well-planned and cost-e ective renovation can certainly add value to your property and gain you a better sale price – there is also the risk that the improvements will not be worth the cost of doing them, and you can over-capitalise on your property.
The bottom-line is your Return On Investment or ROI. You want to ensure that the amount you invest in the renovation is less than the value you’re adding to the property, and the sale price you’re likely to achieve.
If your property is an investment and your tenants are vacating before renovation, you will also have the added considerations of lost rent income during the renovation period, and the other costs incurred during the lag time before the new owners take over the property i.e. loan costs, council rates etc.
Here are a few situations where I wouldn’t recommend you renovating:
If margins are lean
If you’re property isn’t in desperate need of repair, then renovations may not be necessary. Especially if after crunching the numbers, you’re not confident you would be increasing the sale price by that much, and remember a return on investment can never be guaranteed.
If the renovation will personalise the home
Some renovations appeal to most buyers, like upgrading kitchens and bathrooms, but others can be quite personal and should be avoided. This can include adding extensions, and converting bedrooms into specific- purpose rooms like a media room or library.
If you need to sell quickly
Renovations take time, both to plan and budget for as well as to be completed. So if you’re looking to sell in the near future, renovations may simply not be possible. Remember that renovations often go over budget and can take longer than anticipated, so factor both of these into your decision.
If the renovations will cost more than 10% of your property’s value
A general rule of thumb when it comes to renovating a property for profit is that you should spend no more than 10% of the property’s value on the renovations. So the first step would be to ensure you have an up-to-date valuation of your property, performed by a professional. The next step would be to work out a budget, and ensure you add a buffer in case of unforeseen additional expenses. Using the 10% rule, this means a home valued at $500,000 should have no more spent on it than $50,000, plus a buffer amount. Otherwise you risk over-capitalising.
ASK IF YOU’RE UNSURE
When planning a renovation, don’t shy away from asking one of our sales professionals their opinion on the type of buyer your home is likely to attract, renovations they would recommend, plus market price (pre and post renovation). Another educated point of view is always helpful and may save you a lot of hassle, time and money.
NB: While every effort has been made to ensure that this information is accurate, we recommend you seek independent specialist advice.