Love affair with renovating

In July last year, a one bedroom unit in Brisbane, Australia sold for more than $2.6 million, which was a pretty staggering figure at the time. It hadn’t even made it to the market. The buyer came from the agent’s database.

The one-bedder was originally part of a three-bedroom, three bathroom apartment that had sold in 2015 for $2.3 million. The story made the papers, but what it didn’t tell was how much had been spent on the renovation.

Now there’s the rub.

How much should you spend on renovating?

First question to ask yourself: Am I renovating to stay or renovating to sell?

Let’s tackle renovating to sell.

It’s relatively easy to find stories about houses increasing in value post-renovations, but profitably transforming an average property into something spectacular involves strategy.

Planning involves:

Research

Include in your checklist: neighbourhood demographics and current design trends and tips on renovations that appeal to modern tenants, stand the test of time and won’t date the property. New Zealand Master Builders suggests a great place to start is the House of the Year website, which features the best new homes and renovations across all budgets and categories.

Approvals

Find out if you need council approval – or body corporate approval – before you begin renovations.

Finances

A budget is in order, to include materials and labour, plus an allowance for the unexpected. Most renovations involve limitations, and can include time constraints and stress as well as financial block. A helpful rule of thumb is to allocate no more than ten per cent of your current property value on renovations, with the bathroom coming in at about two per cent and the kitchen perhaps a little more.

Engaging the experts

Be clear on who is project managing the job. Decide early what trades you will need to hire. Seek recommendations and quotes. If you are planning to be ‘on the tools’ yourself, recognise your limitations.

Renovation realities

Kitchens and bathrooms tend to be the two renovation projects that will chew through a budget, but they are also two rooms that can make such a difference to a home’s appeal and be quite the selling points.

Renovating these spaces can impact on functionality; an updated, fresh look; safety; efficiency; and overall comfort and the experience.

A Master Builders Australia survey last year found that the number of bathroom renovations had jumped 25 per cent in two years.

A very basic bathroom renovation may average $6,000 to $12,000 depending on size and quality. Tip: Keep the costs down by not shifting the existing plumbing points.

Updating a medium sized bathroom with mid-range products in Australia or New Zealand may cost $15,000 to $20,000, perhaps to $30,000… though you can go high as you want when you get into the realms of luxury.

In truth, the cost of renovation is not something that can be determined purely by the size of the room or chosen style. Costs vary significantly depending on location, chosen fixtures, materials, trades required and contractors of choice, for example.

When looking at ‘gems to renovate’, look out for properties with the capacity to build another house in the rear for example.

And after the renovation

When it’s all done and dusted, and it’s time to see what your efforts have been worth, be careful about having unrealistic price expectations. You cannot presume the property will sell easily, and you must heed market research.

Here’s another way of looking at renovation for profit. Renovate with the intention to retain and rent the property. This may have benefits though depreciation, avoiding tax and duties, higher rental return and lower vacancy because tenants are attracted to your newly renovated property, plus the fact you are building your asset base and have capital growth potential.