Why renovate?
Many homeowners and investors renovate their properties with the objective of adding value and maximising their return, either in the form of a higher sales price for a residential property, or a higher rental income for an investment property. However, many Australian homeowners are also renovating their properties to better suit their lifestyles or to upgrade outdated fittings to reflect more modern designs and trends.
The objective and desired end result for your renovation will influence your budget, timeframe and renovation choices.
Increase property value
A well-designed renovation can add significant value to your property. The return on your investment will largely depend on the property type and location, as well as the scale and type of renovation itself.
It is estimated that a major renovation can add up to 10% of the value of your home, particularly if you hold on to the property for at least 5 years. For example, if your property is valued at $500,000 and you spend $25,000 on your renovation, you potentially make over $50,000- twice your initial investment.
You should speak with local real estate agents, a conveyancer as well as your existing lender to get an idea of how much value your planned renovation could potentially add to your property.
Maximise sale price
If you plan on selling your property in the future, a carefully planned renovation can help boost the property sales price. Keep in mind that if you’re renovating to sell, rather than renovating to live, you should take steps to ensure that any changes you make will appeal to a wide pool of potential buyers.
Investment property profit
By adding value to your investment property, you can charge a higher rental amount which yields greater profitability. As an investor, you can also benefit from depreciation and tax deductions which may help you generate wealth and diversify your portfolio.
Boosting rental income
| Budget item | Amount |
|---|---|
Total kitchen renovation cost | $24,000 |
Interest paid on loan @ 3% | $720 p.a |
Approximate depreciation benefit | $300 |
Balance after depreciation | $420 |
Increased rent due to improved quality | $25pw |
Additional income | $1,300 p.a. |
Greater functionality
By adding value to your investment property, you can charge a higher rental amount which yields greater profitability. As an investor, you can also benefit from depreciation and tax deductions which may help you generate wealth and diversify your portfolio.
Avoid relocating
From real estate agent fees to stamp duty to conveyancing charges, the costs involved in selling and purchasing a new property can be exorbitant. Generally (and depending on the scale of the project), renovating or upgrading your existing home is a cheaper alternative.
Should I renovate?
Pros
- Increase property value and generate profitability
- Improve standard of living
- Expand existing space
- Substitute outdated fixtures and appliances for better quality ones that will provide greater durability and a modern appeal
- Save money by renovating instead of relocating
Cons
- Potential to overcapitalise
- Time, financial and emotional stress (and resources) required to complete renovation
- Inconvenience of living through renovation or moving temporarily
AVERAGE RENOVATION COSTS
For a major renovation project, including the renovation of; a kitchen (10 sqm), main bathroom (5 sqm), master bedroom (8 sqm), a second bedroom (6 sqm), laundry (4 sqm), patio (8 sqm), ensuite (5 sqm), study (6 sqm) and dining room (7 sqm), the costs are as follows, depending on whether you go for a budget, typical or luxury build
| Budget Cost | Average Cost | Luxury Cost |
|---|---|---|
$179,118 | $196,818 | $214,518 |