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In a buoyant property market, as in most Australian capitals over the past year, it’s tempting to spend on home improvements and renovations. After all, prices on the up mean money laid out now would be recouped, and then some, if the property was sold – don’t they?

But that can be a trap. Overcapitalising – spending money which would not be recouped by an increase in a property’s value – is a risk for both investors and owner occupiers. While most experienced investors are wary about overspending and wise to avoid this trap, that’s not always so for newcomers to the investment market, or when improving on our own homes.

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Creating Your Own “Home Sweet Home”
We all want our homes to be comfortable and convenient; if not the home of our dreams then at least one we like, decorated to our taste. And who hasn’t dreamed of a pool and air-conditioning on a hot summer’s day, an extra bedroom or two when the relatives arrive or sipping wine in a landscaped garden with water feature.

While some of us buy as a way of moving up the property ladder – add value, sell, take another step up – many of us go through the exhausting and stressful process of house hunting with hopes of staying put for many years.

Such plans bring with them the risk of overspending – adding top-quality fixtures, and features such as pools, which take the amount spent on the home well beyond what it would fetch if sold. The rationale: we are not moving anytime soon.

But we never know what the future will hold and unexpected events may force us to sell. Bereavement, divorce, a work transfer, an overseas opportunity – these are just some of the reasons that “forever” home may turn into a stopover. So it is always wise to ensure your home is not overcapitalised. That means being sure changes and improvements will boost the property’s value to cover their cost and hopefully, make a profit.

Know What It’s Worth

So how to know that? You know what you paid for your home, but do you know what it’s actually worth? A good starting point is to compare your property’s worth to the local median price to be sure you do not put your home out of the reach of buyers looking in the area.

Even it’s far superior to others in the area, if it is well above the suburb’s median price buyers looking in that area may be put off and it may take longer to sell.

After all, if you are creating a million-dollar house in a half million dollar area, even if it is worth it the pool of buyers is likely to be small. If your house is not in a great location – beside the railway line or on a main road, for instance – that is something no amount of spending will change. And the work you plan may destroy features buyers in that area want – reducing the garden size with an extension, for example.

So if you are contemplating renovations – perhaps kitchen and bathroom, expensive landscaping, decking or even layout changes and removing walls – it’s important to know how much your property is worth and what it would be worth with that work completed.

Ask the Experts

Consulting a real estate agent is a great way to find out whether your plan is a good one. Seek an appraisal of your home and the agent will compare it to others recently sold in the area, as well as assessing its own special features and drawbacks.

Ask the agent for advice about your plans – would they be a wise move, would you get that money back if you sold? If the answer is no, the time, stress and cost of renovating are best avoided.

Enzo Raimondo
CEO, Real Estate Institute of Victoria

Enzo-raimondo
About the author: Chief Executive Officer since 2000, Enzo Raimondo is the dynamic force behind – and the public face of – the REIV. He is a regular commentator in the media, within the industry and to the wider community.

Category: Developing, Finance, First Home Buying, Renovating | Comments Off

As the weather is starting to pick up and the sunnier months are within reach, it is easy to feel inspired for change. It could be a DIY addition to your property which you never got around to throughout winter or that home improvement project collecting dust in the garage. For some of you, it could perhaps be as drastic as a fresh start in a new home.

Smart property decisions require planning, so before launching into bold schemes or drastic changes it is important to look back.  Whether you are a property investor, home owner or aspire to enter the market, take the time to carry out a property review.

First, the Review

Homeowners, begin by asking yourselves whether you are happy with the house you are living in.  Is it the right size and location, does it have the features you need?  Does it suit a growing family, is it too big?

Has the time come to downsize, upsize, move from an apartment to a house, make that tree change or seachange?  Are you ready to move to a better location or house with more suitable features?  Work out what you need and what you want – not necessarily the same thing.  These need to be clear in your mind before you begin planning how to get them.

For investors, now is as good a time as ever to review your portfolio.  This applies equally to those with numerous properties, including full-time property investors, and those with a small rental apartment.  All property should work for you.

Do you have underperforming assets which should be divested?  Do you need to add value to your assets, for example through improvements?  Could you better use your equity to purchase new assets?  Are your loans are tax effective and flexible.

First time buyers, are you ready to buy for the first time?  Have you been in the market for a while and it not work out?  Why not?  Was your deposit too small, prices in your chosen area too high, the prospect of all those open homes too daunting?  Identify the reasons, the obstacles which stood in your way.  Only then will you be able to effectively plan to overcome those obstacles.

Planning and research- the key to your property success

Any plan to change should occur with research.  Information is power and will help you achieve your goals.

Begin researching the basics such as mortgage rates – these are still at historic lows but there are variations between lenders – preferred areas and their prices. 

If you need to sell before buying, it is ideal to get started on choosing your agent as soon as possible and get advice about what needs doing to make your home as attractive as possible to buyers.

Those intending to buy for the first time should not only begin researching affordable locations, but make a financial plan to achieve that goal.  Daunted at the prospect?  Seek budgeting advice and use the right tools to make informed decisions.

A realestateview.com.au survey found half the renters surveyed believed they could not afford a deposit and a 32 per cent believed they could not afford mortgage payments. So think laterally about making that dream achievable: can family help with the deposit, is there a more affordable location near your top choice, would you consider an apartment rather than a house?  For affordability, would you consider buying further out and commuting? And how about investing – buying to rent out can provide a foothold on the property ladder.

Investors- look ahead in the upcoming months.  Research prices and affordable locations with scope for capital growth. No time?  Consider hiring a buyer’s agent to do the legwork for you.  Talk to lenders about ways to make your equity work for you.

Research vacancy rates and yields. Find out what renters want, so your properties will be in demand. The realestateview.com.au survey found a large, quality kitchen and heating and air-conditioning were the features renters saw as key.

The property market remains buoyant and in recent years, investors have made substantial gains and homeowners have seen the value of their largest and perhaps only substantial asset increase.  Here is your opportunity to continue to grow your assets with the security of bricks and mortar.

 

Enzo Raimondo

CEO, Real Estate Institute of Victoria

 

Category: First Home Buying | Comments Off
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