Renovating for profit

Renovating for profit

It’s easy enough to paint a few walls, sand floorboards and call yourself a renovator. But knowing exactly what you need to do to add value to your home requires expert knowledge, which many people do not have.

Renovating can be a great way to add value to your property. If the work is carried out correctly and with the right advice, you could make tens of thousands of dollars in equity in the first year alone, according to property expert Chris Gray, chief executive of Empire Property Portfolios.

“It can be as simple as new paint and new carpet, or it can be as complex as a complete gut and refurbishment,” he told Property Observer.

How much should you spend?

While some experts advocate spending no more than 10 percent of a home’s value, Gray insists there is no hard and fast rule when it comes to cash for a makeover.

“It’s always a good idea to engage an independent and impartial property valuer before commencing your renovation,” he said.

“It’s easy to become emotional when buying and renovating property, but when you become emotionally involved, it usually leads to overcapitalisation.”

On the other hand, if you undercapitalise, potential tenants or prospective buyers may not be willing to pay top dollar for the property as it hasn’t been renovated to its true potential.

How to come up with the cash

Renovating a house or unit can bring great rewards but you have to find the cash to pay for it.

Finance guru Effie Zahos said the best way to fund it is using your own savings.

“That way you won’t pay interest on the work you do, which makes the profit margin all the sweeter,” she writes in Money magazine.

But it could take around three years to save a $25,000 renovation kitty, if you put away $150 a week in an online savings account or mortgage offset account.

An easier and faster way is to redraw any equity out of your home loan.

But take care, warns Zahos: “Borrowing an extra $25,000 on your mortgage may only increase your repayments by $45 a week, but over 25 years that can add $40,000 to your total interest bill.”

For those who don’t have a redraw facility with equity in it there are other options, she said. These may include topping up your existing home loan, taking out a second mortgage, taking out a personal loan or whacking it on your credit card.

No matter how you plan to come up with the cash, it’s important to do your homework and worth comparing deals using a site like RateCity.

Not all renovations add value

Aside from money, there are many dangers lurking inside your next renovation. So tread carefully, said real estate agent John McGrath.

He recommends thinking about the balance of the home before when making changes to its layout.

“If you intend to add more bedrooms, make sure you have enough living space. If you don’t you’ll pay dearly when it comes time to sell,” he told Money magazine.

“Spend wisely. Focus on areas and rooms that can add most value when it’s time to sell. The rooms that generally add most value are the living spaces and kitchen areas. If you get these right you can invest $100,000 and double the value in weeks.”

Get it wrong and you could end up losing money in the process, he insists.

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