Professionals Real Estate Over recent years, home renovations have become very popular as a way of improving the value of a property and reaping capital wealth through property investment.
In the current real estate market with a large number of properties for sale, there are opportunities for astute buyers to purchase an older style property at an affordable price and improve the capital value and rental returns through targeted renovations.
Before anyone decides to purchase a property for a home renovation, they should consider the following points:
- Determine the land value of the property, it is this which ultimately determines the selling price of a home as land appreciates in value and the physical building depreciates. For example, if the land value of a property purchased at $500,000 was only $200,000 and you spend $100,000 on home renovations, it is very unlikely that you will recover the $100,000 you spend on it. You can determine the land value of a property by examining recent sales of similar properties in the area and determining how much the building was actually worth.
- A simple way of determining how much you should spend on a home renovation is to assess similar properties in your area that have undergone the type of renovation you are considering. Then compare the market price of this property to the property you are looking at renovating.
- Be careful to avoid making an emotional decision. Many people decide to renovate old character homes because they fall in love with the idea of this type of renovation for nostalgic reasons. The reality is that renovating older homes can prove very expensive due to many ‘hidden costs’ such as plumbing and electrical work. Also you may need specialised tradespeople when renovating a character home to ensure it is properly restored to its original condition.
- Before buying a property to renovate, have a registered builder look over it and give you an estimate of how much it would cost to undertake the work. Many people underestimate the cost of even a simple home renovation and a reputable registered builder should be able to give you an estimate of the cost of your plans.
- The time frame of your home renovation is very important. If you are an investor and the property will remain vacant for a long period of time because of the renovation, then lost rental income has to be factored into the overall cost of purchasing the property. Forward planning is therefore a key issue before considering buying a property for the purposes of home renovations.
- You should check the future zoning of the property that you are considering buying. For example, if the property will be zoned as a development site then there may be no point in undertaking a major home renovation because it might be financially wiser to demolish and build higher density home units.
- Consider targeted home renovations. Typically, renovations in kitchen and bathroom areas deliver the highest returns for property owners because these are two key areas in a home that determine the resale value of the property.
- If you are planning to buy a home for renovation purposes, you must have a strict budget and work within the financial plan. A common mistake during home renovations is that owners often over-extend themselves financially and are unable to complete the renovation to the standard they have originally planned
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