Home Renovation Warning: How To Avoid Over-Capitalising

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Video transcript:

What we need to be careful of is renovations on your property. Yes, you can get mortgage finance assistance to help you with renovations, check out one of our other videos on that one.

But what I want to talk to you about is really making sure your strategy in renovating a property is a mathematical one, and not an emotional one. And you can discard this video if you’re doing renovations on your forever house, because it’s your forever house and so you do whatever you want.

But if you’re doing renovations on a house just because you want to do renovations, just be careful on what you invest, and what you spend in that house that you’re going to get the money back.

Time and time again, I’m seeing people either overdevelop a house, and what I’m talking about there is they knock down and rebuild a big mansion for a suburb where the price point is way above the medium price of that suburb.

And so what happens is every suburb has a ceiling, so most suburbs out in the greater middle area of the city, they will have a ceiling which is really impenetrable and it doesn’t really go beyond that.

You got luxury suburbs where you can have higher marking price point properties inside it. But for the normal working class, if we use that horrible title, you’d say that every suburb has a ceiling to it, so if we knock down and build a house, $300,000 over the ceiling of that suburb, it’s going to be a very difficult property to sell at that inflated price, and there could be consequences.

Other things I’ve seen people do is add in new gardening and landscaping and spend a lot of money or expensive swimming pools, like a $100,000 swimming pools, and then you don’t get the return on that investment for what you’ve outlaid.

So when you’re looking at renovating a property, usually one that you’re going to live in, just make sure you take the emotion out of it. Maybe even get a real estate agent, get a couple, get some appraisals.

Say, “Hey, this is our house. We’re thinking of doing these renovations”. What do you think this is going to do to the value of our property? Will it make much difference? Would buyers be interested in purchasing our property for 700,000 when most houses are being sold for 400,000 in the suburb?

Because naturally what you’re going to find is if you got a $700,000 value house, in a $400,000 suburb, well then you’re going to have 700,000 property people value wise comparing your suburb that you’re in, to other suburbs, which are stronger in name for the value of that price.

Little bit confusing I know, but I hope that’s sort of put into perspective the nature and causality of overcapitalising in renovations.

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