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Use A Tight Budget When Renovating Investment Properties

Posted by Paul Wilson

Renovating still remains a popular way to make extra equity in a property that is looking shabby. Talk to most regular renovators and they will tell you just how important it is to keep to a strict budget when renovating.

It is so easy for a renovating budget to blow out of all proportion and I am not talking about where you have come across a problem that you were unaware of, such as white ant for example, because these types of problems need to be fixed during the renovating process, I am talking about choosing the items for the renovation and not overspending, such as spending an extra:
•$30 on a laundry basin and cabinet
•$50 on a better standard of tap
•$250 putting up extra shelving
•$150 on better window treatments
•$500 on a better carpet
•$100 worth of paint that was not budgeted for
•upgrade to plumbing and electrical fittings

You can see by not taking the above items into account at the time of budgeting you could well have added another $1,500 – $2,000 to the overall spend and I have only listed smaller items!

Budget blowouts often occur when the items that you had budgeted for are not available and this is where you need to watch your spending.

All that aside, one very important point that a renovator has to keep in mind is to ensure that the renovation does not over capitalise the property.

In case you are not sure what I mean here, it is when the actual property has had so much spent on it that the property is overvalued when compared to other properties in the area. If you are going to rent the property this may not be such a dramatic mistake although you may still not get the rent you wanted because of the local area, but if you want to sell the property and it is overvalued it means that you will most likely not even get back the money you spent, nevermind some profit for all the effort.

Simply put, renovate to suit the area. An upmarket area will allow for the spending on things like gold taps, but a median priced property means that the spending needs to be on budget or very basic lines. There is no point in putting in a spa bath, shower and all the trimmings, slate floors, etc in an average priced house.

What does add vaue to a house is the actual number of bed rooms, garages, and ensuites, etc. These additions always add value, but again they need to be done to a tight budget or to suit the area property values.

Consequently the renovation may cost $48,000 whereas if done with cheaper items, but elegant fittings, no spa bath or marble bench tops, etc., then the renovation may have only cost $37,000. This bottom line makes an awful lot of difference to the price when selling a property.

Even as far as a rental goes, an investor would most likely be looking for a higher rental to get a return on the outlay, but if the property is in a lower standard housing area, it could be quite difficult to get someone to pay the higher rent.

The moral of the story is: when renovating, cost everything you plan to do, work out the final value of the property and check to see if it is a viable proposition. If it is, then stick to your plan as closely as you can. If you have to overspend in one area, then trim back in another.

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