Maintaining a home
Renovation costs: how to avoid overinvesting
The myriad of home renovation TV shows make it seem easy to profit from home remodelling, despite renovation costs. But it’s not as simple as it looks to make a profit on your home renovation.
How do you know if your renovation budget is right or if you’re investing too much into it? Here we outline some important considerations to take before diving head-first into an expensive renovation project:
Formulas can help
Renovation experts may give you exact percentages and formulas to use to work out how much money to invest. For example, some sources quote a ‘general rule of thumb’ to put between five and ten percent of the overall value of the home towards your renovation costs. Others go into even more detail than this, breaking down how much you should spend on each room of the house (e.g. 15% of the house’s value on the kitchen, 10% for bathrooms, 3% for other rooms of the house).
Keep in mind that some rooms of the house will provide a greater return on investment than others. Kitchens and bathrooms, for example, are essential rooms that people spend lots of time in. It would make more sense to update these rooms, rather than to add a home office or spend lots of money renovating a pool area. Unnecessary house features like this are not as sought after by buyers, and won’t add as much value to your property in the long run.
Start with research
When looking to renovate, it makes good financial sense to start by researching property prices. Search the web and look at the data available. There is often some good information on real estate websites, and you could even speak to your local real estate agent to get a better idea. Take note of what other houses in the area are selling for.
You can also check the value of your home using the Suncorp Property Explorer Tool. This is available in select Suncorp stores to help you check your suburb’s property profile and see how your house compares.
To be sure of how your property measures up against others in the suburb, you can get a professional valuation report completed by a licenced valuation firm (there will be a cost involved). By doing this, rather than guessing for yourself, you’ll be sure what your current house is valued at, and if it’s worth spending lots of money on.
Make a renovation budget
It sounds simple and straightforward enough, but budgeting is one of the most crucial steps in planning a home renovation. So, it’s important to get this step right.
Online tools such as budget calculators can help you get an overview of your spending, and where you could be saving.
Make your renovation budget in advance, and stick to it. If you’re overspending on a certain room, look at where you can cut costs elsewhere to balance it out. If you’re quoted $20,000 for a complete bathroom remodel but you only have $10,000, maybe consider a simpler cosmetic renovation instead to match your budget.
Get tradie quotes
Think about what professional help you’ll need, and then get a range of quotes. Factor in the cost of materials, and set aside a bit extra for those pesky hidden costs. They can come from unexpected places. If your kitchen is being renovated, you may need to eat out for a month. If the plumber finds water damage in your bathroom, you may need to add a few extra thousand dollars to your overall spend to rectify it.
Take the emotion out of it
Becoming emotionally invested in your home may lead you to make decisions based on preference rather than financial sense. It’s fine if you are updating your home to improve your living situation, but overinvesting in extravagant materials could result in you losing money once you sell the house. Those marble tabletops you’re in love with may not be as important to potential buyers, and may add just as much value as a cheaper marble-look option.
If you’re adding features to suit your lifestyle, consider how long you’re likely to live in this house. If you’re spending $50,000 to renovate your home office, but may move to New York in six months if a job offer comes through, the expensive home office probably won’t be a great investment right now.
Thinking like an investor can help you get the most value for money with a home renovation. If you’re renovating your home or investment property, the key to avoid overinvesting is to plan, research, and budget diligently.
Information is intended to be of a general nature only and any advice has been prepared without taking into account any person's particular objectives, financial situation or needs. You should make your own enquiries, consider whether advice is appropriate for you and read the relevant Product Disclosure Statement or Product Information Document before making any decisions about whether to acquire a product