Saturday, January 24, 2009

Renovating gold - how to make it pay!

Renovating is no easy task. Renovating AND making a profit is even harder, especially when the property market ain't delivering astounding returns. Here are some hints to ensure grand renovation plans don't dud you into overcapitalising:

 1. Focus the budget

Renovations that recoup their costs are difficult in a property market where house prices are stagnant or falling. That means you must make your renovation dollar work hard. Guard your reno budget closely - a dollar saved is a dollar earned! Work out the exact scope you can spend on a house without eroding any equity if the market fell by, say, 5 per cent. This makes your budget necessarily tight, but extremely focussed on achieving a value-add. 

2. Add value

Unfortunately the fancy fripperies of renovating fly out the daggy aluminium window when residential property markets are in a lull. The best way to spend without frittering away the equity in your house is to invest in: more floorspace, better layout or landscaping,extra off-street carparking PS: This is all theoretical. Only solid research into your local area' s property market will reveal whether your renovation plans will return you money in resale price. So plan, plan, plan before you spend, spend, spend! 

3. Attend to profit 

For a renovation to be profitable you must cover purchase and sale costs, interest, loan establishment fees and your own time. It ain't easy to make the figures stack up. But if you are renovating to a bottom line, you have no choice but to think carefully about how much you spend and how much you want to get back. A beautiful home or apartment is all about perception and emotion. And renovating to add value is all about creating perceived value in excess of the actual cost. As property prices shift and change, so too will perceptions of "value" - homes on busy roads or less-than-great streets tend to be discounted harder. A renovator with a slightly sub-par home needs to create even stronger perceptions with their work than someone that already owns a well-located home.
Picture: Marcel Lam via New York Times

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