You would have heard the renovation advice: 'don't overcapitalise!' But what exactly does that mean and how can you ensure that all of your hard work results in profit?
If you buy an old home that's a bit of a fixer, your renovation to-do list may be as long as your arm.
But when house prices are stagnant or falling, it's hard – not impossible – to make money on a renovation. The key is to make your renovation dollar work harder, to tightly guard your budget and to work out exactly how much you can spend without eating into equity if the market fell.
Take Brisbane, for example, where the average home is valued at $420,000. According to RP Data, the city's house prices have fallen 6.6 percent over the past year. That means the average Brisbane property would have been worth about $450,000 a year ago.
Imagine if you spent $45,000 on renovations for a property that you thought was worth $450,000 12 months ago – just to get a payback on that cost you'd then hope to sell for over $500,000. But the property could now be worth just $420,000 and you've gone backwards on your investment.
Obviously no two renovations are the same – and many do add serious value to your property. Here are the best tips I've learned to add value through renovation:
When you're looking for renovation finance, your options can be as long as your to-do list – redrawing from your mortgage and saving in an offset account are probably your best bet. Another good option to look out for is a construction facility if you're building and need finance in stages.