The key to any successful residential improvement is understanding not just what you need, but also what is best for the house or apartment itself.
The term “over capitalisation” looms as a warning to renovators concerned about messing up the value of their house or over spending. If it were simple to work out how much expenditure is considered an overspend there would be a simple formula. The truth is that each street in a suburb will have a different average value and demand.
The best place to start is to study your area’s past sales, looking for properties that are like your home is now, and like you intend it to be.
Finding homes just like yours will give you a good idea of what your property is worth in its current state. That’s your base line or starting point. Let’s call that A.
Next find properties in your area that are similar to what you want yours to be after renovation – like-for-like comparisons are best, so the same type of streets, the same orientation to light and the same proximity to amenity are ideal so you can make a direct comparison.
By averaging out a few of those you can get your conservative potential. Let’s call that D.
Now your challenge is to look at what has been added to the D homes that are lacking in yours. Look at what has been added in terms of extra living spaces, bedrooms, bathrooms, studies, extra levels, garages or parking spaces, etc.
Focus on what you can build into the property and what it can add to the home’s usability and value.
- Related: A room-by-room guide to renovating
- Related: Important things to consider when buying a home
- Related: The most common home-buying mistakes
Now with the list of things you need to do to your A home to upgrade to the D type homes you can start to put together costs for the renovation so you can work out whether you can afford it and whether you’ll keep within your target (D) price tag.
Remember there are other costs apart from the materials and labour of renovation. These include council fees and inclusions (B), holding costs like renting a different property to live in and mortgage repayments (C).
Therefore your equation becomes A + B + C = D. So you need to factor the costs of B and C into your budget to make sure your improvements keep you from over capitalisation.
While you’re looking at the D type properties, that is the homes that are your desired end point, look also at what inclusions and finishes they have in your area. It’s all well and good to want a blue kitchen but what if the buyer in your area doesn’t?
If you’re intending to stay for 10-15 years you can take a “who cares” attitude and do as you please, letting the next buyer worry about replacing what will be an outdated kitchen. If you intend to move within five to 10 years, consider what buyers in your market respond to.
If you find it hard to discern that from websites and images, go to open houses and listen to what people say about the properties. Talk to the agents. That way you will be able to add the right rooms and finishes to your home as well as tailoring your fittings and inclusions to create the most desire and therefore value from your property.