People renovate for lifestyle reasons or to try and make a profit. If you intend to stay in your property for a long time and wish to adjust your home for your needs then it is money well spent. However, if you are considering renovating for profit – tread carefully.
People renovate for lifestyle reasons or to try and make profit. If you intend to stay in your property for a long time and wish to adjust your home for your needs then it is money well spent. However, if you are considering renovating for profit – tread carefully.
Some suburbs have a ceiling price. Potential buyers, no matter how attractive the property, may not go over that ceiling price. In these areas, if you spend $50,000 to $60,000 on a renovation for example, you may only increase the value of the property by $20,000 or $30,000. You don’t want to spend money renovating the property and then find that you’ve lost money.
Of course, there are exceptions to the rule. When you can add unique and desirable features to your property, in the right area, you can profit from renovation. A great example from one of my clients, was where we helped with their pre-renovation consulting advice. They had a two bedroom, one bathroom apartment in an older building with low body corporate fees. In that particular suburb the dominant unit type was a two bedroom, one bathroom apartment, however the demand from the market was for two bedroom and two bathrooms. The two bathroom product was rarely available as most of the suburb had older buildings. The owners came to us with a renovation budget of $20,000 which they could have spent refurbishing the existing unit and making it neat and presentable. The likely end value would have been $320,000-$325,000. For a budget of $25,000 they could be a bit more economical on the finishes, but create a second bathroom in the same floor space. By doing this, the appraisal price was $349,000 for only $5,000 extra outlay. The property had so much competition that it sold in the first week for $375,000 making it a very profitable exercise for the owners.
Meanwhile, vendors who spend $20,000 or $30,000 on a renovation on a two bedder in the same building, keep the existing configuration and just change the finishes, will typically only break even and sometimes even lose money. At a minimum, spend money on repairs and general maintenance items, buyers want a property in good working order. I always believe that the 80% areas are the places to spend money, the places where you spend 80% of the time in the house.
The point is that your money is precious and sometimes you don’t need to spend a lot on your property to get the best price.You have to know the market and know what potential buyers are prepared to pay for. Make sure before undertaking any work, to get an idea of the likely value of the end product and see if there is established sales in the market to sustain your price expectations.
If you are considering selling your property, talk to a market expert and work out what the achievable end price is for your home in your area. You don’t want to overcapitalise by spending money you won’t make back - always do a needs analysis first to sure you don’t.
Original article: http://www.apimagazine.com.au/property-investment/renovation-to-increase-sales-price-tread-carefully