That dreaded word, over-capitalise, simply means that what you spend on your renovation outweighs the value it will add to your property.
Most times a good renovation can make your property zing, add style, and value. Alas, getting carried away is easy to do, and the value you hoped to inject into your property is swamped by enthusiasm on the spend side of the ledger.
Even when you find a bargain in the best location it doesn’t come cheap, so it makes sense to maximise your investment as much as you can.
That’s where that saying, ‘buy the worst house in the best street’ comes from. You have room to remodel and reap the reward for your effort.
The right renovations will certainly help as you transform a drab house into a cash flow positive property.
Perhaps you just want a great family home with a better chance to sell for more than you originally bought it for when you are ready.
Oftentimes, increasing a home’s value came second to improving quality of living.
However, there’s a fine line between spending money to make your property more desirable and over-capitalising on your renovations.
Luckily, there are plenty of strategies you can use to avoid over-capitalising on your renovations.
Start with a valuation
Your first course of action should be to have your property valued by a professional. How much it’s worth may have changed from when you initially purchased it, and it’s important to get an independent view regarding its value.
Once you know how much your home is worth, you can narrow down the amount of money you plan to spend. After all, it won’t make much sense to spend tens of thousands of dollars renovating a property which will not improve that in value when you are done.
Check out your neighbourhood
In addition to your property, it’s important to take surrounding homes into account. Neighbourhoods will generally have a ceiling value, meaning a certain threshold buyers and renters are willing to pay to move in.
If your ultimate goal is to attract tenants or home buyers, spending a small fortune to push up the value of your home won’t do you much good if it’s located in an area where home seekers are unwilling to pay a higher price. In short, luxury mansions call for different renovations than starter homes.
Time to line up the dollars
Next it’s essential to make a budget. Beginning the renovations process without a firm dollar value in mind is a recipe for overspending.
When you know how much you’re willing to spend, you can get your finances in order and focus on renovations that fit your budget.
Don’t make it personal
If you’re renovating a home you live in, it can be easy to get personally attached to what changes you make.
While it may be important to have a comfortable and well-made home for you and your family, think about which renovations make the most financial sense and will appeal to a wide range of people.
You may want a house with a swimming pool, but the cost of such a renovation could outweigh the value it adds to your property, as well as push potential home buyers who don’t want the upkeep responsibility away.
Make strategic renovations
Keep in mind what renovations will bring the most value to your home. Upgraded kitchens and bathrooms are favourite places to start. Meanwhile, renovations that make homes greener – increasing efficiency, reducing energy bills and benefiting the environment – are becoming increasingly popular.
On the other hand, making renovations that will limit what future renters or buyers can do with a home is a bad idea. You may want to transform your spare bedroom into a library complete with huge bookshelves and ornate lighting, but by customising the space and changing its structure, you’re ensuring that future homeowners will either have to share your interests or be forced to pay for renovations of their own.
Looking for a valuation to get started? Go to Peak Agent and find out how they can help you find a reputable agent with local knowledge in your area.