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Overcapitalising with renovations

New homes and major renovations, Central Coast, Newcastle and Sydney

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Gearge Brand Real Estate Terrigal, Central Coast, NSW

Kitchen makeover by Property Presentation Professionals

Kitchen makeover

Living room makeover by Property Presentation Professionals

Living area makeover

Whether you are renovating your home for more space, updating its interiors or developing with the view of selling, you need to consider whether your investment will be recouped by the value you add to the property.

If you plan to live in a property for 10 years or more, it is difficult to imagine that you could overcapitalise when renovating, as the value of your property will have risen due to rising land values and demand in the market. However, it is still worth considering the effect that your renovations will have on the value of the property. There is no point wasting precious dollars on improvements that don't increase your eventual sale price. And worse, some improvements can be detrimental to the value of your property.

For instance, if you live in an area that is popular with families, outdoor living space will be seen as a major benefit when people are comparing homes for sale. But if your renovation extends so far into your outdoor space that there is no room for children to play, you are limiting the eventual market for your property and adversely affecting its resale value.

Another factor you should consider when deciding on your renovation plans is the number of bedrooms you will be left with. Sometimes it is tempting to combine a living area with a bedroom so that the living area is more spacious. But if this means losing a bedroom, the value of your property may be adversely affected.

Before you finalise your renovation plans and your budget, do some careful research in your suburb to see whether your investment will be recouped. For instance, if you plan to do a $200,000 renovation and your property is currently worth $400,000, are there other similarly sized properties in your area that are worth $600,000? Or is there a ceiling price of $500,000? No matter how amazing your property looks when it is finished, it will still be compared with similar sized properties in your area. If you can scale back your plans to spend $100,000 rather than $200,000, you are less likely to be overcapitalising. Every suburb has a ceiling price, whether it is $350,000 or $2.5 million, and you should take this into account when investing in a renovation.

Below are some improvements that are winners when it comes to adding value to a property:

  • Bathroom (ensuite or an extra bathroom upstairs or downstairs)
  • New kitchen (with more bench space, new appliances and neutral designs)
  • Open-plan living area with doors opening onto an outdoor entertaining area
  • Built in storage in bedrooms, laundries and even living rooms
  • Larger windows or glass doors that bring light into small houses
  • Extra bedroom (in a loft space or a second story)
  • Off street and undercover parking which wasn't available previously
  • Ducted air conditioning throughout the house

If you would like some advice about whether your renovation plans might overcapitalise your property, we recommend that you consult a local real estate agent to get their idea of how much value you will be adding.

We also recommend you speak to an experienced Interior Designer about the best renovation options for your home and how to reduce renovation costs.