The last instalment on RealEstate radio also went unrecorded - because I forgot to press ‘record’. (Blonde moment!) However it was all about the missing third step from last time. Here’s roughly what we covered.
In the three budgeting steps we looked at before you worked out what you wanted and roughly how much that would cost. It’s now time to match that up with how much you should spend if you don’t want to over-capitalise.
Valuer Peter Hay of Hay Property Group advises renovators concerned about over-capitalising to think again if the projected cost of their renovation work is more than one third the current value of their property. This is particularly the case if the renovation is not going to add significantly to the footprint of the house.
Archicentre general manager David Hallett agrees that what you spend on your renovation isn’t necessarily what you get back. “It’s pretty difficult to do an extensive renovation and get your money back immediately,” he commented earlier in 2007 .
The common areas where people tend to over-capitalise are bathrooms and kitchens. “You can spend a lot of money on expensive tapware but at the end of the day what really sells a house is location, location, location,” Archicentre’s Hallett said.
Timing is also important. Peter Hay advises that in a good rising market you might get 90 per cent of the renovation cost back in a few years. However “in a flat market, you might get 50 or 60 per cent back,” he said.
One tactic is to approach a couple of the local agents, show them some pictures of your house, current floor plan and then ask them what they think it could be worth if you renovated it. Ask them the typical things that buyers will want (and will pay for).
Mind the gap
Basically, you’re going to get an idea of what renovated houses in your suburb are selling for (just sold and on the market), to get an idea of what your end product’s going to be worth, the gap between what you paid and the current prices should be roughly what your renovation should cost - in today’s dollars.
As one renovator I interviewed for the book put it: “If how much you’ve paid for the property plus what the job’s going to cost is more than what you can then sell the property for, or what someone else is selling a similar property for, then you’re over capitalising. It means that either you’ve overpaid in the first place for the property or your renovation is too expensive.”
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