18 Dec 2015

Renovating? Be Careful Not To Over-Capitalise.

Australians in increasing numbers are becoming building experts and style gurus. It’s no surprise that Bunnings shareholders are smiling. Equally unsurprising is the number of DIY injuries treated at hospital emergency centres. Many DIY-ers jump in with bags of enthusiasm but are often unskilled and unprepared. Done the right way, however, self-renovating can reap rewards. Take these examples. Tony inherited his mother’s 1950s California-style bungalow in a trendy inner-city suburb. Although on a decent-sized block, it was neglected and run down. Tony’s mate Josh was handy on the tools. Before Tony could say, renovator’s delight, he and Josh had embarked on an ambitious DIY project. Dale and Chris owned a nice home on an upmarket street. Although in good nick, it was tired by comparison with their newer, more modern neighbours. Planning to sell, the couple knew that their location attracted well-heeled buyers, but their home’s outdated style brought the price down. Dale and Chris consulted real estate agents to understand what modern buyers looked for then visited display homes for ideas about current trends. After chatting with their financial planner, they allocated a realistic budget and engaged a reputable builder to upgrade their kitchen and ensuite. In the end, the value of their house wasn’t increased by the renovation, but had the renovation not been done, the sale price would have been dragged down by more than the amount they spent. Weighing cost against return is a delicate balancing act. Dale and Chris were realistic about their goal, their budget and their local property market. They did their homework and did not over-capitalise; their renovation was a resounding success. Tony’s story ended somewhat differently. Josh found a girlfriend and lost focus leaving Tony to pay for a tradesman to finish the job. It took longer and was more costly than he anticipated. By the time his savings ran out, he was disillusioned to realise that his mother’s tired old home, was still a tired old home but with a media room, outdoor kitchen and strange floorplan. When it finally went on the market, the over-priced bachelor pad failed to attract the typical suburban family buyer. Fed up with paying rates and insurance, Tony cut his losses and dropped the price. Predictably, it was snapped up. DIY renovations can be fun and rewarding and sure, it looks easy on the telly. But there is great potential for mistakes, and mistakes of this kind are usually expensive. When talking real estate, there’s something to be said for having the worst house on the best street. But if your reno project turns your place into the best house on the worst street you could be in for trouble. Consult property and building experts, identify risks and hidden costs, then weigh your time, financial and emotional outlay against likely gains. If you’re still keen to tramp the DIY path, at least you’ll know what you’re in for.  

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