Q. We are considering a knock-down rebuild but are not sure of the value proposition. The median price of the area is $950,000.00. We already have a house in reasonable condition, a modern bathroom will reinvigorate the house and the structure is solid. But if we were to buy land in the area it would cost approximately $800,000 and cost to build a double story would be around $450,000.00. Double stories in the area sell for between $1.1m to $1.4m depending upon convenience of location and proximity to upcoming railway. We are confused, are we over capitalising or will be alright?
A. Deciding whether to renovate or knockdown and start from scratch is always a tough decision because of the costs involved, and no one can predict how the property market in your area will perform in the future. You mention buying land but I would assume if you’re considering the knock-down rebuild that you’ll be using the land you already own?
Without knowing what you paid for your home and how much you still owe on it, as a general rule if your home’s structure is sound and it’s in relatively good condition, renovating is more likely the way to go.
To avoid over capitalising you need to get advice from local real estate agents or a valuer, thereby ensuring that the revised value of your home after renovation is equal to its worth prior plus what you spent on renovating, or ideally more.
Renovations can be tailored to your changing needs, whether you have a growing family or want a retirement lifestyle. You can make small but very important changes to your home, with bathroom and kitchen makeovers generally the biggest contributors to property’s value lift, with the potential to also save on energy and water by putting in solar systems.
However many renovators underestimate the true cost of renovations, so it’s important to do your research and crunch the numbers with a local real estate agent who knows the area well.
Obviously the big bonus in a knock-down rebuild is that you can design from a clean slate and build the house you really want, but based on your figures, the expense might not add greatly to the value you will achieve.
Ultimately, the path you take should depend on what your aspirations are for your house, how long you plan to live there, your budget and whether you can stand the effort and risk in taking the sometimes drama-filled step of a knock-down rebuild. I recommend you do a bit more research to understand what value you’re likely to attain from any improvement works you undertake, as it just might be the cheaper, easier and faster solution.
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