Sometimes the idea of buying a house, renovating it and putting it right back on the market may sound like a savvy one, but this may just be one way to lose money because not all renovations add value, warned Adrian Goslett, regional director and CEO of RE/MAX Southern Africa.
This is because potential buyers will not necessarily pay extra for newly installed luxury upgrades. When homeowners make home improvements, their designs are made to suit their lifestyles and tastes with the intention of increasing the home’s value, but the more personal their choices are the less likely they are to have a positive effect on resale value and there is no guarantee that money spent on upgrades will be recouped when you sell.
Get a professional to do the job
While some renovations can add significant value, others can detract from the asking price when you decide to sell. This is especially the case when renovations are done shabbily or substandard materials are used. For this reason, “the homeowner should not attempt to complete the project themselves unless they are qualified to do so, as this can sometimes have the opposite effect and impact negatively on the property’s value,” advised Goslett.
“There are several factors that should be considered before undertaking any renovation project. Home owners must be very cautious, and ensure that additions to the house are carried out in a professional, skilled manner. In some cases it can be very costly to have a professional rectify badly completed renovation projects - in fact it could even be more expensive than if the job was completed by the professional right from the start,” he explained.
Do your research
According to Goslett, “if a homeowner spends too much money they run the risk of over-capitalising and losing money on their investment. The renovation may add value to the property, but not enough to cover the cost of the project.”
You need to decide what fixtures will add value and improve the property and what may not when you want renovate, especially if the reason for the renovation is specifically for resale purposes.
Not every home is suitable for renovations and there are certain renovations that will add value regardless of where the home is situated, such as security upgrades or kitchen and bathroom updates, which remain the most popular rooms in a home to remodel. However, Goslett explained that if the renovation is outside of this scope it is important to research trends that are specific to the area. By doing this, you avoid spending unnecessarily on costly upgrades.
Goslett provided a few aspects to take into account when considering a renovation project:
1. Calculate the home’s value
The only way a homeowner will be able to avoid the risk of over-capitalising is by knowing their home’s current value as well as the projected value of the home after the renovation project. The homeowner should not spend more than the difference between the two values.
Goslett said that the projected value of the home will largely be determined by the property’s location. “While there will be marginal variations to the house prices in an area, most suburbs will have an average price range. If the renovation will push the price of the home way above what it can be sold for in the current market, then it may be better to leave the property as it is.”
2. Draw up a budget
Once the projected value of the property has been calculated, the homeowner will be able to set a renovation project budget. As a general rule, the cost of the renovation project should not exceed 25% of the current value of the home.
According to Goslett, homeowners should ensure that they have a cushion of least 10% worked into the budget for unexpected overruns in cost – it is best to be as prepared as possible for any surprises.
“In order to ensure maximum investment benefit, the homeowner should keep within the confines of their set budget. While this may require extensive research and discipline, it will be financially beneficial in the long run,” noted Goslett.
3. Take area trends into account
Furthermore, Goslett revealed that not all additions or renovation ideas will appeal to every demographic of buyer, so it is essential to determine the predominant buyer profile in the area and specific features they are attracted to.
For example, family buyers in upmarket suburbs are often looking for aesthetically pleasing homes with staff accommodation. Entertainment and living areas have also become important with many buyers looking for properties with covered patios and built-in-braai facilities. “Consulting with a real estate professional with working knowledge of the area will be very useful in gaining this type of information,” added Goslett.