With real estate in the United States having crashed during the Global Financial Crisis of 2007, and only just now starting to get back to pre-crash levels, more and more people have decided to stay put in their home for longer, and to renovate or remodel rather than move into something bigger or better. Investors, too, have been remaining quite cautious when it comes to buying, selling, and flipping properties, and have typically been looking for value-adding ways to upgrade their investments instead of putting them up for sale.
As a result, renovations and remodels have been on the rise and look set to stay popular for a while yet. If you’re thinking of joining the trend, it’s important to be careful about how much money you put into this work, so as to not overcapitalize.
Unfortunately though, many home improvement projects that people take on don’t actually end up adding value to a property at all, particularly in a down market. Some can even detract from your sale price when you do decide it’s time to put your house up for sale. If you’re thinking of adding some value to your property in 2017, read on for some tips you can follow to ensure you don’t spend more than you should.
Set a Budget and Chat With Your Lender
The first thing to do when considering renovating or remodeling your home is set a budget. It is incredibly easy, particularly when you just want to get the job finished or when you’re feeling excited about making changes, to spend a lot more money than you either have on hand or should be investing.
Take your time to really think about what work you need to get done versus the things you’d like to do but that aren’t necessary right now. Cost out every item on your list based on the materials and labor required. If you plan to use builders or other contractors for some work, ensure that you get quotes from multiple sources to find the best price, and then get these numbers in writing so that they cannot vary later. As well, check that no special conditions are attached to the contracts before you sign.
If you don’t have the funds on hand to pay for the renovations, it is important to speak to your current lender (or a potential new one) about taking out a loan or getting an extension to your current one. You might want to consider looking into a homestyle loan, as these are set up specifically for people who need cash for renovation and remodeling work.
Research Your Suburb and Recent Sales to Understand What Adds Value
Next, don’t start spending money on your home upgrades until you’ve done your research to find out what does and doesn’t actually add value. You should take a look at recent sales in your suburb and surrounding areas, as well as check out houses currently on the market to see how they look inside and out, what is included (or not), and what price they’re listed for.
This will help you to see where you should be spending your money, and might clue you in to certain things that you thought were valued in the area but actually aren’t. For most suburbs you will find that people place high importance on kitchens and bathrooms, as well as storage space. Other things that can be valued immensely, depending on the area and type of buyers, are outdoor living spaces; large number of bedrooms; office space; separate teenage or guest retreats; pools; and the latest high-tech appliances, outlets, and fittings.
Keep in mind that each suburb can be very different, and even certain streets with a suburb can vary. You need to look at who would be buying your property from you in the future (e.g., a family with young children or with teenagers, a couple, a single person, empty nesters, retirees, etc.) and then work out what types of features they would like and dislike.
If you’re finding it tough to figure this out yourself, don’t be shy about speaking to a number of real estate agents who specialize in your area, or even bank lenders, for advice. They all deal with properties day in and day out and will have a good understanding of where you would be best served to spend your money.
Buy the Right House at the Right Price
Lastly, if you’re looking to invest in a new property that you will do up and then sell, it is imperative that you buy well at the outset if you want to maximize your profit. Purchasing the right kind of property, in the best area, and at the right price, will ensure that you don’t overcapitalize on an investment before you even begin to spend money working on it.
While this will probably mean that you miss out on buying many properties you initially like, crunching the numbers, having patience, being disciplined, and investigating each property carefully (so that you don’t find out after settlement that expensive structural or other changes are required) will stand you in good stead and increase your profits.
Join our newsletter
If you like Critical Financial, subscribe and get our latest content via email.