The number 1 rule is “don’t overcapitalise”
We see millions of jobs posted on ServiceSeeking.com.au by DIY-ers and professionals. While it’s easy to improve the appearance of your house with a new coat of paint or polished timber floorboards, true renovators consider the purchase price and the overall costs of the renovation to determine whether they are going to make positive return on investment.
How do you know if the concreter you’ve hired has under or over-quoted on your job? Will your bathroom and kitchen really take a month as indicated in the quote, or will it go over time as two or three months delay can be costly? And should you always go with the cheapest quote or pick the business with the most reviews?
Renovations require careful planning and execution. Investors must bear in mind that the purpose of renovations is to maximise the property’s equity, so the profit is often in the decision-making and not necessarily in picking up the tools.
Here are our top three tips on keeping costs down when renovating:
- Compare a range of quotes from interested businesses. One or two quotes is not enough. Many people often take the best and most competitive quote to other interested businesses to keep everyone honest and to sure up the sharpest price possible.
- Consider hiring a quantity surveyor to provide a depreciation report so that you can maximise deductions on your tax return.
- Ask businesses to agree to charge you their costs plus a mark-up. This is often the cheapest way of arranging a renovation if all goes to plan.
Will my renovation go over budget?
Most likely, yes. Consider adding a 20-25 per cent contingency for unforeseen expenses that will invariably crop up during the process.
How much should I spend?
The ServiceSeeking.com.au Rule of Capitalising is to not go over 5 per cent of the purchase price on renovations. So based on the current median national house price of $612,200 (source: ABS as of 15 December 2015), your renovation budget shouldn’t be much more than $30,000 (this is enough for a kitchen and bathroom makeover). The more expensive the house, the more you can spend on a renovation (but the 5 per cent rule will mean you don’t overcapitalise).
A well-planned and executed renovation can add up to 10 per cent to the value of your home, especially if you hold on to the property for five or more years. So by spending $30,000 on renovating your average $612,200 home, you could potentially make more than $60,000 — double the money you’ve invested.