How to know if you’re overcapitalising

With all this talk of grants and renovations, it can be easy to start thinking about the improvements you might be able to make your own home. But $150,000 is a lot of money, and will you make a return on investment if you pour that much money into it?

Let’s look at some of the tips to consider before you pull out the jackhammer or tear down a wall.

1. Do your research

Knowing a little about the neighbourhood you live in is really important when it comes to making a big investment in improving your home.

Check out websites like realestate.com and Domain to find out what the median and maximum house prices are in your area, and what a house will sell for that has a similar land size and similar feature as you’re planning for your renovated home. If the value is only $50k more than what you think your house is worth, maybe a $150k renovation isn’t going to be worth it.

If research isn’t your thing, you can also get a professional in to do the work for you and tell you what your house is worth now, and what they think it could be worth once any renovations are complete.

2. Set a budget

Keeping your research in mind, set a budget that is going to be financially viable for your situation, and still let you achieve as many of your renovation goals as possible.

When setting a budget it’s important to include all the things you know you want, but it’s also a good idea to add in a bit of a buffer for those unexpected things that might pop up along the way. Unfortunately things can (and often do!) go wrong, but having a budget in place that has allowed for this will mean you won’t have to stress about stretching your finances too thin. And if things do go to plan, you’ll have some cash left to splash at the end!

3. Be strategic

Maybe your dying to add in a walk-in wardrobe or put in a swimming pool in the backyard. While these things may add some value, you’re not going to achieve the same bang for your buck as if you were to make changes that improve the layout of your home, or upgrade those big ticket items like a new kitchen or bathroom.

Consulting with an architect or qualified builder is always a great idea to ensure the major changes you make really are going to be adding value.

4. Think about the timeframe

Is this renovation just a quick flip, or are these changes going to make this your forever home? With a quick flip, it’s more important to make the best decisions with your spending to ensure that you are going to be able to make a profit in the short-term, when the overall prices in the property market aren’t like to have increased dramatically.

If it’s more of a long term investment and you see yourself living in the house for another 10 years or more, spending a larger amount isn’t quite as risky, as housing prices are more likely to go up in general, meaning you have a greater chance of recouping the money you have invested.

5. Talk to the professionals

We’ve mentioned it already in a few of the points, but when it comes to making investments worth this amount of money, seeking professional advice is important.

It’s easy to take things personally when it comes to your own home, and while you might think you know what will make a difference in terms of value, sometimes getting an impartial, professional opinion can help to make sure you are heading in the right direction.

If you have any questions about overcapitalising on your property, please don’t hesitate to give us a call on 08 7226 8033 to discuss your situation.