It’s easy to be inspired by the super-profitable renovations and dream rebuilds we see on TV.
In real life, the picture can be a little different. The key to achieving your particular dream home is to arm yourself with the comparative costs for both selling and buying, and renovating, with a clear understanding of what’s possible on the funds you can raise – and afford to pay off. So, let’s take a look at some things you need to consider.
Know your budget limits
Calculating how much you can afford to spend involves getting a current valuation of your property. Once you know your existing equity, you’ll have a clear picture of what you can afford to borrow and spend on a renovation or a new home. Both options often involve re-mortgaging, with the renovation needing an offset facility that allows you to draw on those funds.
When deciding on how much of your equity to use, you need to keep in mind the loan to value ratio (LVR) of your new loan amount. If your LVR is higher than 80% for your new loan, you may be required to pay lenders mortgage insurance on top of your already larger loan.
Comparing the costs of renovating and moving home
To get an accurate picture of whether renovating or moving would be the most economical solution for you, you will need to compare a few figures. These include the comparative costs of selling and buying something similar to your renovated property in your desired area.
Buying a new property means paying for conveyancing, stamp duty, marketing and agent and solicitor’s fees. While these costs haven’t risen a lot, the timeframe, costs of building materials and the labour needed for a renovation have. This makes it especially important to budget a renovation accurately, so you are able to compare these costs against buying a move in ready property, where everything has already been done.
The alternative scenarios you’ll need to consider include whether the home you want to create is realistically within your budget to buy or renovate, and if you could potentially end up overcapitalising.
Overcapitalisation is a consideration many would be renovators overlook but need to be aware of. This is when the cost of the renovation is more than the value added to the property. You may be happy with this if your aim is to create your forever home, but it may present financial challenges when the time comes to sell.
Again, research and accurate financial forecasts are important. You’ll need to consider the current value of your home, what it would potentially be worth when the renovation is complete and the price point of equivalent homes in your area.
Matching your renovation to your budget and timeframe
Homeowners choose the renovation route for lots of good reasons. Some may want to get a property ready to sell or to transform a loved but too small or dated home. While others may not be able to afford to buy another home that is suitable, or want to increase the rental value of an investment.
Whatever your reason for renovating, you need to remember that it probably won’t happen quickly or cheaply. This means proper planning and adding in some financial wiggle room, is vital for a realistic budget. This includes deciding on extras such as the quality of your fixtures, alternative accommodation, and employing a site manager or architect to organise trades, manage council approvals and manage the project budget.
There is a lot to weigh up before deciding between a renovation and property move. We’re happy to help you get the facts you need to make a fully informed decision and reduce any unexpected costs, so please get in touch to organise a chat.
Setting your renovation up for success
Set a budget
Consider what you can do yourself i.e., painting
Understand the feasibility and costs of your ideas
Employ trusted trades
Start any council approvals or apply for permits early
Speak to us about financing your renovation
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