How to avoid a reno rum­ble

Herald Sun - Property - - OPINION -

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

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