How to avoid a reno rumble
IT’S the age old dilemma — is that decaying, dated little charmer in your dream street the renovation project for you?
Will you really have the patience or the constitution for camping out in your own home? Could you really cope with cold showers and your belongings continually covered in dust, paint splatters and various other forms of general construction? But the most important factor of all, could this property allow you to add more in capital dollar value than dollar spent?
I paint a picture of reno hell, yet as a young man and subsequently as a family man, I have lived through countless renovation projects and amid the sheer kerfuffle of the above inconveniences and survived.
However, this all becomes irrelevant if the main issue is addressed from the outset. Can you add enough dollar value to cover the costs, plus a little for your time and effort? If you seriously doubt you can, it may be time to look at alternatives.
When that project has a successful result, all the physical and mental strain will seem worthwhile; if the result is the opposite, I have seen relationships flounder and collapse, finances move into the red and questions raised about why people ever bothered.
So how can you calculate if a property could be the renovator’s dream or the renovation from hell? Market knowledge is the key.
Firstly, focus on the local market around the home — what is selling and what is most popular? Get to know median house prices, their historic and current trends, current demand levels and days on market. Noting properties with higher than median price values can be slower to sell, I always suggest establishing a price range benchmark for the property.
It’s also important to drive or walk around the area to discover if others are renovating or having building works done.
This research can help you establish if the market is right to invest your money and time, along with whether you may be up against other buyers.
Assessing future value for the property is another important factor. If the renovation was undertaken in full, base that on current values. Never factor in anticipated capital growth, as it may not occur. Plan the project, then compare your proposal to similar homes in the area.
Often you will find a ceiling for local values. You need to be aware of what level of specification is needed for added value in that market place. For example, adding a fourth bedroom may make sense, but a fifth bedroom and a third bathroom may not.
When working out how much the renovation will cost, don’t ignore those hidden costs such as council fees, holding costs if you are not living there, stamp duty and selling costs.
Be sure of your renovation goals. Are you renovating to live in the property long term, or planning to resell? If it’s the latter, ensure you know rental values if the market is down when it comes times to sell.
This sounds like a huge amount of work, however if you select a market you know well already, know where to get renovation/building quotes and can cost materials, it is a massive advantage.
Ideally, you need to know the house at a price guide of $350,000 for example, could be worth nearly $500,000 if fully renovated and extended. Mostly on that type of budget, you would need to know you could complete all that work for less than $100,000. That would equate to a possible 10 per cent gross profit. If your calculations illustrated a lower level of return, walk away.
If you are a first-timer, why not undertake a dummy run? Inspect a renovator anywhere and then calculate future values and renovation costs. Could you make it work?
Andrew Winter hosts on the Lifestyle channel