Be carte­ful not to over-cap­i­talise when ren­o­vat­ing

Whitsunday Times - - DOMAIN -

The Real Es­tate In­sti­tute of Queens­land (REIQ) rec­om­mends mak­ing the fi­nal de­ci­sion to ren­o­vate as care­fully as you would make any other in­vest­ment de­ci­sion.

“Over­cap­i­tal­i­sa­tion can be a risk for ren­o­va­tors buy­ing a house and liv­ing in it only a few years,” REIQ man­ag­ing di­rec­tor Dan Mol­loy said.

“Over a pe­riod of 10 years, over­cap­i­tal­i­sa­tion on a home is neg­li­gi­ble be­cause of de­pre­ci­a­tion and ris­ing land val­ues. How­ever, if you move ev­ery cou­ple of years it’s a dif­fer­ent mat­ter.”

Over­cap­i­tal­i­sa­tion oc­curs when an owner spends more money on im­prov­ing a prop­erty than the profit those im­prove­ments could be ex­pected to bring if the prop­erty were sold.

The REIQ rec­om­mends re­search and a sim­ple for­mula to min­imise the risk of over­cap­i­tal­is­ing, while adding value and valu­able liv­ing space.

“First of all, note the price you paid for the prop­erty, add the ex­pected to­tal cost of the ren­o­va­tions, add an­other five per cent for land­scap­ing and you have the cost of your house and im­prove­ments,” Mr Mol­loy said.

“Let’s say the to­tal cost is $510,000. Next look at houses in your street and check news­pa­per real es­tate ads fea­tur­ing nearby homes.

“If there are no homes val­ued as high as the $500,000 mark, then you are prob­a­bly over­cap­i­tal­is­ing. Only pro­ceed with the ren­o­va­tions if you plan to live there for the next eight to 10 years, or if you’re con­fi­dent your sub­urb will be the next to boom.

“While it’s an overused real es­tate phrase, al­ways re­mem­ber that choos­ing ‘the worst house in the best street’ is clever buy­ing for those want­ing to ren­o­vate.”

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