Renovation rescue: is it worth it?
By Amy Bradney-George
17 September 2008
As banks and credit unions adjust their interest rates following the latest rate cut, now could be the time to take advantage of the property market.
If you’re looking around at different properties, chances are you’ve noticed how hard it can be to find the perfect one.
So what is the best way to get what you want in a house – by renovating or by building? To make it a little easier here’s a look at what these options can offer you.
Renovation
If you’ve found a house in the perfect location, but can’t imagine living in it without some serious work then the thought of renovating has probably crossed your mind more than once.
Renovation seems a popular option in Australia, with reports from the Housing Industry of Australia predicting investments in renovation to be more than $28.2 billion this year.
Independent NSW builder John Horwood says a common reason people renovate is to personalise a house and that the property market and interest rates can also influence decisions to renovate, buy or build.
“What I’ve found is that if interest rates are up, people who already own a house will renovate, and if interest rates are down they’re more likely to buy or build,” he says.
Apart from relieving the financial stress of fees attached to buying new property, renovation can also add value to a home. But with the current property market down there are also greater risks involved.
Brett Greensill, Prinicpal of LJ Hooker in the popular Brisbane suburb New Farm says planning is essential for any property to have financial benefits.
“There are many people who bought unrenovated homes at the peak of the market, and if they wanted to sell now, without actually doing the renovation, they may not even get their money back, let alone make a profit,” he says.
“The only ‘way out’ for them is to complete their renovation and hope that they aren’t overcapitalising in the meantime.”
Greensill says the current market makes it very easy to spend more than your budget before lifting a finger.
“I hear from many clients that go through renovations that it almost always goes over budget and over time, so you’d need to factor in those costs as well.”
He says it’s hard to give a general dollar value to renovations, but if it’s well planned renovating can increase the house to a price that more than covers the original costs.
“For example, if your home was worth $400,000 and you spent $100,000 renovating it, then it’s easily possible to achieve a sale of $600,000,” he says.
For first time home-buyers the question may be whether it would be cheaper to buy with renovation in mind, or to buy something already renovated.
Geensill says Australia’s current falling market indicates it’s generally cheaper to buy an already renovated house or unit.
“If it’s a rising market you can make money renovating, but if it’s a falling market it’s probably cheaper to buy a house that’s already renovated.
“The best advice I can give is to stick to the fundamental good things you’re looking for like location and features of a property. Try to keep in mind what’s good and what’s important to you,” he says.
Building – the blank slate alternative?
Unlike renovation, building gives you the option of working with a completely blank slate, starting from the location to the actual house design.
With the right budget and good contractors, building can give you the freedom to create your dream home.
As a builder Horwood says he’s often called in at the last minute to help people out with problems.
“Building something from scratch can sometimes get people in over their head,” he says.
He advises people to have an understanding of what they want and what needs to be done before putting hammer to nail.
“There’s so many things that can go wrong and if you start wrong, you might have to do a lot of wrong things to finally make it work properly. You definitely have to have a good idea of what you’re going into,” he says.
Similarly, it’s important to know what you want and discuss the plans with builders before making a start on the perfect home.
Greensill advises anyone thinking of building to be careful about contracts.
“Delays and cost blowouts are commonplace, and will have financial consequences for the clients. If they’re renting elsewhere…they’ll need to be prepared for problems arising at the eleventh hour,” he says.
Greensill says buyers should hire a good solicitor to help with the contract, and to be aware of how the market will affect the building budget.
For the first-time buyers it’s hard to find the perfect house straight away, but Greensill says experience and exposure to the market can help.
While the lower interest rates make buying property more appealing, it’s important to talk to people like builders and real estate agents before making a decision. And keeping an eye on the market will help you make the best choice for your future home investments.
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