Often people automatically choose to renovate their property in order to increase it’s value, however is this the best strategy out there?
Below are three points that may make you re-think this old and lengthy strategy.
True Cost
We have heard the term, kitchens and bathrooms sell houses, but at what cost?
According to the 2019 Houzz report, the median cost of a kitchen renovation was $20,000 in Australia. The median cost of a bathroom renovation was also a further $12,000 [1].
For majority of Australian’s $32,000 is a very large amount of capital that could be potentially utilised for an initial deposit for the investors next property.
Unforeseen Costs
There are many potential unforeseen costs that could easily occur and blow out the overall budget.
Some of the common reasons people leave with heightened costs during the renovating process include:
- Upgrades to electrical work, if the house is old and needs rewiring
- Fixing previous work that wasn’t done correctly
- Structural upgrades to comply with building regulations
- Costs for corrections e.g. moving plumbing, miscalculating materials or relaying tiles
Contingency Buffer
A critical component of budget planning is to have a contingency buffer of funds to ensure you can cover any unforeseen costs and remain financially stable during the renovation process. As a rule of thumb, you should set 10-25% of your overall budget aside for any unexpected costs that may arise during the process [3].
Investors should always be looking at the big picture and identify smart ways to grow their property portfolios.
Before making a decision to renovate, consider the true costs, along with any potential unforeseen costs that may occur, and factoring in a contingency buffer, it might be best to not renovate at all.
Get in touch today to book in your complimentary Property Investment Strategy Call with one of the investment consultants at Meridian Australia.
Meridian Australia
Phone: 9939 3249
Email: info@meridianaustralia.com.au
References
- Overview of Home Renovation in 2018 and 2019 – Houzz and Home Australia
http://st.hzcdn.com/static/econ/en-AU/HHInternationalAustralia19.pdf - Expecting the Unexpected: Renovation Cost Blowouts – Peter Gurovski https://www.roomfour.com.au/renovation-cost-blowouts/