As home values continue to fall nationally, the number of people forking out money to renovate has also plunged.
New figures show lending for renovations dropped to a record low in January, according to the ABS, however as properties become even harder to sell that could soon change.
“What you’ll probably see happening next is that as properties become harder to sell, people will start using that renovation strategy again to try and get their property noticed,” property investment adviser Margaret Lomas of Destiny Financial Solutions told Your Money Live.
Lomas says that while it can great strategy for selling, investors should be aware that there are two distinct reasons for upgrading a property and both come with different strategies.
Renovations are either used to increase a property’s ‘saleability’ or to increase its underlying value, she explains.
While saleability refers to the superficial flourishes that make a property more attractive to buyers, the underlying value has more to do with the dimensions of a home, such as the number of rooms or how high the ceilings are.
That’s because valuers can see through simple design tricks, such as paint jobs and new cupboards.
While these smaller renovations might not increase the value of a property, they can help a property to stand out from the other competitors on the market.
However, Lomas warns that increasing a property’s saleability shouldn’t be a costly undertaking. In fact, you should be able to do many of the tasks yourself.
“You’ll want to make sure that whatever you spend is returned at an increased price…A dollar spent should be returned as a dollar gained.”
What upgrades help to sell a home?
If you’re looking to make a property stand out, Lomas says these are some of the key things you can do without breaking the budget.
- Painting – one of the easiest ways to freshen up a property
- Small kitchen upgrades – that could include new cupboard handles or a new benchtop
- Bathroom refresh – such as tiles sprayed or the bath resurfaced
- Landscaping – to create a more attractive outdoor living space
- Front facade upgrade – such as painting, removing old shutters or adding new frames around windows
How to add value to a home
While saleability might help to make get a property a better sale price, increasing a property’s value will usually require much more work.
“If you want to add actual value when the market is behaving normally, then you’ll have to do more significant things… Not just make it look nicer,” says Lomas.
Technically, you have to change the shape and size of a property to be adding any real value to it, Lomas explains.
This might include:
- Adding a bedroom – by building or cutting a large space into two parts with a wall
- Rendering the outside – a great way to modernise an older brick home
- Adding al fresco space – Such as a balcony or an outdoor seating area
- Opening up living spaces – Open plan spaces can give a home a more modern feel
However, Lomas advises that because major renovations are expensive, a homeowner should make sure that the renovations will return at least twice the cost of that increased equity.
What to avoid
It can be easy to overspend, especially when renovations come from the heart.
Lomas warns that property investors shouldn’t get emotionally tied to any renovations to a property that isn’t their ‘forever home’.
“I’ve certainly been guilty of over-capitalising on an owner-occupier property when I created some really lovely outdoor spaces which improved my lifestyle, but they didn’t add their cost to the value.”
“You certainly have to avoid this on an investment property, because it’s a sure strategy for going broke.”
Other common mistakes include:
- Not knowing the market
- Not understanding values
- Making a home too big for buyers
- Using expensive fixtures
- Renovating the wrong areas
Watch the discussion in the video above for more tips.