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  • 26 Aug 2015

BEWARE OF OVER-CAPITALISING

Whether you are buying a house to do up, or are keen to renovate the one you already have, there is always the risk of over-capitalisation. It's practically a given that you'll spend more than you planned but the question is, where to draw the line?

But before you chastise yourself too much, remember you're only human! We all do it. We tell ourselves that a lick of paint and a few new fittings and fixtures will do the job. Then off we go to the DIY store!

 

Stick to the list

There's the $10 light fitting that's on the list. It's perfectly adequate and will do the job just fine. But take a look at that one, with its glitter and sparkle. How good would that look in the bathroom! It's nearly $50 but . . .

STOP! And ask the questions.

What is your property currently valued at? Are you renovating to sell, or live in or rent out? What can you really afford?

For example, if you live in a $100,000 house, investing $35,000 in a new bathroom will not give you a good return. The general rule is that you should not spend more than 25 per cent of the value of your home on home improvement renovations.

 

Remove the emotion

If you are simply sprucing up the property to sell or rent out, try not to indulge your own, possibly expensive, whims. Take a step back and remove all emotion from the equation.

Not only are you unlikely to get the money back that you spent on that chandelier, but the chances are the new owner will hate it and take it down!

If you are renovating your own home and intend to continue living there, it's a slightly different scenario. Sure, indulge all the senses but if you can, still keep the budget in check. The idea is to enjoy the home, not spend every waking hour at work earning the money to pay for those renovations!

 

Remember the re-sale value

According to, Archicentre, the Royal Australian Institute of Home Advisory Service, many homeowners pay thousands of dollars only to devalue their homes - ie improving the property beyond its re-sale value. Remember, other factors are in play when it comes to valuing your property, such as the general streetscape, the state/value of your neighbour’s house and so on.

Another little idiom to bear in mind when renovating, is quality not quantity. That unbeatable deal that Bob Bodgit & Sons offered could not only end up costing you more, but could actually damage the value of your home.

And if you're considered major renovations, would it actually be cheaper/less stressful to build a new one?

The decision to buy a new home or to renovate is not one to be taken lightly. Think through every aspect of the project prior to getting started. Seek professional advice to determine how the proposed renovations will affect the value of your home.

 

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