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Personal Finance Information |
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Avoiding A Nightmare On Renovation Street
You've decided you want a bigger, better and more desirable house. How do you determine when to renovate, what to do and importantly, how much will it cost and will we get our money back? Unless you're in the building industry, most people are fairly naïve when it comes to making decisions about renovating. Poor choices can be costly, especially if you over-capitalise and spend too much money on the house of your dreams. Michael Hoad of the Subiaco offices of real estate agents Paxton Hoad says many people make the mistake of not planning and fully costing their renovations. "Any form of construction costs more than you think when you start and many people don't understand or underestimate what it costs to renovate." "They make a lot of mistakes, often costly ones, such as why did I do that, I wish I made that smaller or bigger," he said. Hoad also believes renovations date and what looked wonderful and up to date in 1985 may now look totally out of place. "Everything has a life span and people really need to work out how long they're going to be in the house and the purpose for the renovations." To avoid overcapitalising he recommends potential renovators look at the suburb and get a feel for what property is worth in the area before committing. He gives the example of Subiaco, where land is tight, "if you've got a spot, in a half reasonable location, you'll get your money back and more." He gives the example of owners in the suburb spending between $250,000 and $350,00 on renovations. "The greatest increment is in the value of the land, houses generally depreciate offsetting increasing construction costs." He also gives the example of a house valued at $400,000, where the transaction costs of moving cost more than $26,000 once agents fees and stamp duty are taken into account. "Renovating is rewarding, it appeals to some people. Some people love it and others are not so creative," Hoad said. Fremantle based architect, Philip Nikulinsky says many renovators get emotionally attached to a house and this is where they either overcapitalise or compromise the design of the renovation. "A lot of people spend too much on the finishes and go overboard, that's when it becomes expensive." "You've got to look at the end product. Every time you do something a bit different you're going to have to pay for it,' he said. He says any significant renovation starts at around $120,000 and for older character style renovations owners should budget around $1,200 per square metre. Nikulinsky's advice, "be rational about it, have nice finishes but don't go overboard." This is a view backed up by builder Gary Matson of Subiaco Homes. He says it's often cheaper to demolish a house and start again. "For 30s, 40s and 50s houses there's not a lot to retain, so you're spending a lot of money to achieve fairly little," he said. In older areas he says its worth keeping the character, but again emphasises the importance of doing a budget and looking at ways of how money can be saved to avoid blowing out the budget. Here are 8 tips for first time renovators. 1. Have your house valued. Get an independent view on how much your asset is worth. This will provide a benchmark on how much to spend. 2. Gather information about your area. Talk to real estate agents about how much properties in your area or street have been selling for. Get a feel for the market. 3. Work out what you want? What style of renovation do you want? In period or ultra-contemporary? What will you use the renovations for? What type of look do you want? This will determine the finishes and impact on your budget. 4. Plan your budget before you start. Work out how much you want to spend, how you will finance your renovations and what you expect to get for your money. Do you want to spend $6,000 on a kitchen or $26,000? 5. Do your sums and compare the costs of renovating versus selling. 6. Take a long hard look at the positives and negatives of each option in a logical and rational way. 7. Avoid becoming emotionally attached to your property or a design. Often this can cloud your views, costing too much money for your budget or impacting on the overall effect of the renovation. Take a rational approach to the decision of selling and moving versus renovating, or demolishing versus renovating. 8. Seek professional help. Get a range of quotes from builders, architects and those in the industry. Thomas Murrell MBA CSP is an international business speaker, consultant and award-winning broadcaster. Media Motivators is his regular electronic magazine read by 7,000 professionals in 15 different countries. You can subscribe by visiting http://www.8mmedia.com. Thomas can be contacted directly at +6189388 6888 and is available to speak to your conference, seminar or event. Visit Tom's blog at http://www.8mmedia.blogspot.com.
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