Renovations can cost a bomb and are not always wise, especially if you’re paying off a whopping mortgage.
But if you have built up a lot of equity in your house over the years you are probably not going to be in danger of over-capitalising, says financial adviser Deborah Carlyon of Stuart and Carlyon.
Renovation - from a new bathroom to adding an extra bedroom - can add value, depending on the scale of what you do.
There’s no easy answer as to whether you should put yourself through the expense and stress of renovating, Carlyon says.
Start your property search
“We’re financial planners so very much when people ask us ‘should I buy a house to rent out, should I renovate my house, or should I invest my money in something else’ we always have to say ‘tell me about your current situation, where you’re at, and tell me when you might want to stop work at some stage’, because most of your financial decisions are around making sure that eventually, when you stop work, you’ve got enough money to live.”
Some people, for example, add a lot of money into the house with the idea of downsizing when they retire, Carlyon says.
Even if you are a first home buyer who has already maxed out on the mortgage, renovating might not be over-capitalising - where the expense of the renovation is more than the value it adds - but you might be over-extending yourself which could mean you won’t enjoy the house.
“You’re just going to be a slave to it and that’s not much fun, so it’s about your own priorities.”
If you are a first home buyer, Carlyon says don’t rush in. She recommends living in the house for a year or two to work out where it’s sunny and where it’s windy so you can pick the best place for a deck, for example.
“Get comfortable with it. And usually you’ve bought as much as you can afford to and you’re not going to have much spare capacity so it’s better to build up, because you’re going to have rates and insurance and things you didn’t have when you were renting, as well as the mortgage.
“You’ve got to make sure it’s manageable.”
When you do decide to renovate, it’s important to get everything priced up front so you know exactly how much it’s going to cost, she says, and to also consider whether you are renovating for your own aesthetic tastes or whether the intention is to add value for when you sell up.
You can put a lot of money into a project only to find the maroon colour you chose for the kitchen cupboards is not reflected in the sale price, or you did something else that was odd.
“You put atrocious tiles in the bathroom or kitchen or something that aren’t very marketable and someone else will come in and say ‘I want to replace those’ but at a discount.”
People buy houses to do up and sell, she says, but not that many.
The majority do up their home for themselves then sell a few years later because they want to trade up or move to a different school zone.
“I think if you’re in an area you really like and you want to stay there then renovating can be really good because you haven’t got the upheaval (of moving).”
Creating a third or fourth bedroom inside the house, or putting in a second toilet, can add great value, but once you start extending outside the footprint of the house the extra square meterage costs start adding up.
Adding some indoor/outdoor flow is usually always a good idea, Carlyon says.
“Everybody likes indoor/outdoor flow. A lot of the older houses didn’t have that so knocking a piece out of an exterior wall and putting in French doors and a deck can make a big difference.”
