When you’re planning a renovation, it can be tempting to design with trends in mind and blow the budget, but overcapitalising is something that can be avoided at all costs.
Our homes are one of our most valuable assets, so it’s natural to want to make improvements. Whether you’re renovating to make your home more attractive, more comfortable or above all, more valuable, it can be difficult to strike the right balance between these three factors. And, if you move forward with plans that don’t take each factor into consideration, it’s easy to overcapitalise.
Overcapitalising is when you spend more on your renovation than the value that the update will add to your home, and can be an easy trap to fall into.
With some clever planning and easy-to-implement strategies, you can avoid the dangers of overcapitalising and maximise the value of your home.
Know your home’s value
It’s important to get an independent opinion on the value of your home from a real estate agent or valuer before considering any renovation. They can also give you an idea of what areas or features in your home might be right to invest in.
Know your suburb’s value
It’s smart to get a feel for the value of your suburb, as this will be a defining factor in your own home’s value. The median price in your suburb will rise and fall with time, but it’s good to know how much tenants and home buyers are willing to spend. Keep an eye on what’s happening in your suburb so you’re clear on the property features that are pulling buyers in.
Know your budget
Once you’ve done your initial research, it’s time to get budgeting. It may go without saying, however, a detailed budget is an absolute must-have to prevent overcapitalising. Know where you are financially and look into refinancing if necessary. Be sure to have a contingency plan built into your budget to avoid any renovation disasters.
Get your priorities right
A common cause of overcapitalising is splashing out on areas that are only bit players in terms of overall value. Kitchens and bathrooms can often be quite expensive but don’t necessarily have a large impact on value to justify the cost. These spaces need to be approached carefully and with longevity in mind to avoid overcapitalising.
Particularly if you’re looking to sell in the near future, distinguish what you want from what you need. For instance, while you may dream of weekends by the swimming pool, potential buyers might be turned off by the prospect of maintaining it.
Focus on improving areas of your home that need revitalising without doing too much damage to your budget with fancy fit outs. Personal style shouldn’t take priority over functionality and versatility.
Environmentally friendly features are the future and you may increase the value of your home by making it greener. Simple steps, such as switching to LED lights, can improve the energy efficiency of your home, bringing bills down, too – win, win! If you’re willing to go all out, there are some exceptional updates you can make, but just be sure you aren’t overspending and you are staying within your home’s value.
If you want to talk to an Aussie broker about refinancing your home loan, feel free to get in touch here.