Renovating can be a cost effective way of improving property value for either resale or to improve rental returns, however you should keep the following things in mind!
1. Avoid overcapitalising
The cost of renovations normally adds at least equivalent value to a property, and lenders can take this into consideration when establishing finance. However, be conscious to avoid over capitalising as valuers will have a limit on the maximum amount they will attribute to the renovations. For example, granite bench tops and porcelain tiles could be a great investment for an executive residence, but for a modest rental unit may not be appropriate.
2. Weigh up your return on investment
Will the cost of the renovations have a benefit in either significantly increased rental returns, ease of renting the property, or potential resale value? This of course becomes less of an issue if the renovations are for your long term residence, but should still be considered as your situation could change.
3. Budget for unforeseen circumstances
While you may make your best efforts to ascertain costs associated with your renovations, its often a case that plans may change mid project, especially if structural issues are discovered along the way. Lenders recommend that you allow at least 10% of the project cost for these contingencies.
Lenders will often take the value of renovations and increased rental yield into consideration when assessing your eligibility for finance. Please feel free to give us a call if you would like to discuss finance for a renovation project further!