Here is what you really need to know about “adding value” by renovating – only two things:
A RENOVATION MUST BE LOW-COST BUT HIGH-IMPACT:
Yes it’s true that spending money on certain renovations can make a property either sell or rent for a higher amount than if that money had never been spent in the first place. But the real trick is to keep reno costs so low and the impact of that spend so great that it will make a property worth more money. This ain’t as easy as many experts believe. And the truth is that low-cost home improvements like landscaping, repainting and decluttering will probably add as much value to a sale price as spending $30,000 on a new kitchen.
A RENOVATION MUST COST NO MORE THAN 5% OF THE PROPERTY VALUE:
This is a rule of thumb. I’ve seen plenty of derelict houses that have been stunningly renovated sell for $1 million more when they go back on the market after a gorgeous architectural renovation. But the fact is that those derelict properties were worth well over $1 million to purchase and then had a $500,000 renovation, plus one-year of holding costs (with the owner or developer or “flipper” paying interest on a mortgage and renovation costs) plus stamp duty and then agent fees to pay as well. So the $500,000 renovation cost (which, believe me, is not abnormal in Sydney and Melbourne’s best suburbs) on a $1.2 million house that can then sell for $2 million is not really as “value-adding” as people are led to believe. But whether you want to renovate a $300,000 apartment or a $3 million beach house, sticking to the 5% rule means you are less likely to overcapitalise on a renovation and be able to recoup your costs when you go to sell.
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