Buying a home is one of life’s great milestones, and simultaneously one of its great hassles. The combination of time, stress and money means it’s a decision never taken lightly.
With poor housing affordability in Australia’s major cities thrown into the mix, it’s no surprise a rising number of us are staying put and renovating. Loans for alterations and additions are at their highest levels since Christmas 2009, according to the Australian Bureau of Statistics.
And renovation shows such as The Block are dominating television ratings.
A smart renovation can give you extra space and comfort and increase the value of your home – if it’s done well. But careful research and budgeting are paramount. Examples abound of poorly-planned renovations that have burned through house-loads of cash, and created little or no value when it comes time to sell or find a tenant.
Aussies take to renovating as house prices rise
Renovation isn’t always an option. Some houses have been extended as far as they will go, while in other cases planning rules limit what you can do.
But when the option is there, a growing number of Australians are taking it. The most recent seasonally-adjusted figures from the ABS show secured loans for alterations and additions hit $434 million in September – the highest monthly figure since October 2009.
It is no surprise to Greville Pabst that many are choosing the renovation route. The Chief Executive Officer and Executive Chairman of WBP Property Group, and judge on The Block, says when a homeowner sells his or her existing home and buys another for $1 million, around $100,000 disappears into the black hole of stamp duty, legal fees, removalists, real estate agent commissions, advertising and presenting the house for sale. And that’s before you add the cost of the house.
There is also the hard-to-measure cost of being between homes in a rising market, and the stress and anxiety that can cause.
“There’s a risk when you sell in a rising market like we’ve seen in Melbourne and Sydney that you might not be able to get back in,” Pabst says.
With interest rates on hold at low levels, borrowing money and renovating looks good by comparison, Pabst says.
“You might spend $15,000 in interest costs to do a $300,000 renovation,” he says. “It’s a lot cheaper to do that than to move with all the risk and costs and uncertainty associated with it.”
How much does it cost?
Drawing up a renovation budget and timeline is always an act of discipline, and sticking to it is even tougher. It is a good idea to allow a good margin of error.
When Melbourne couple Nic and Emily Tait (pictured below) began to do up their Victorian cottage in Brunswick in September 2015, a planned three-month renovation took 12 months. They did manage to stay on budget, but the $175,000 cost they settled on was well above their starting figure of $70,000.
Nic Tait advises renovators to have as much detail in their plans as possible before even approaching builders, down to the brand and colour of every item that will be installed – to avoid budget blow-outs.
“If there’s some stuff left out or forgotten about, it can cause problems and tensions down the track during the build when no-one is clear about what spec of item is supposed to go where,” Tait says.
Nic and Emily Tait outside their cottage in Brunswick, which they renovated for $175,000.
Product comparison website, finder.com.au, provides some rough price guidelines, estimating the following costs for an average renovation:
- $21,000 for bathrooms
- $18,000 for laundries
- $16,000 for living rooms
- $37,000 for kitchens
- $26,000 for master bedrooms
All up, an average renovation (as opposed to a luxury or budget renovation) that covers all these aspects costs around $197,000. These are rough estimates and high-end renovations can easily cost a lot more.
Estimated cost of renovations – from basic to premium.
Bessie Hassan, Money Expert at finder.com.au, warns to make sure you account for professional advice from accountants and builders, as well as council fees and inspections.
And make sure you research price growth in your area to make sure you don’t over-capitalise – when the cost of renovations outweighs the value it adds to a residence.
“Look at the historical price growth in your area to see if property values are heading north,” she says. “You can also speak to local real estate agents to get a feel for the type and scope of work that will add the most value to your property.”
There are a number of ways to obtain funding. If you already have a home loan you may be able to borrow additional funds against it, known as ‘topping up’ an existing loan. Those who have made additional repayments to their home loan could apply to access these funds. Or if it’s a major renovation, a construction loan will allow you to progressively draw funds as required during the renovation, thus saving on interest.
How to add value with a renovation
So what gives you the most bang for your buck when renovating?
Start with the kitchens and bathrooms, says Pabst. “It’s kitchens and bathrooms that sell homes. You don’t have to spend a lot of money, often it's modernising and upgrading the tap ware or putting new handles on cupboard doors.”
Carefully placed mood lighting goes a long way, and particular attention should go to the first impression of the house when you open the front door. It’s also worth smartening up the landscaping and cleaning up the driveway.
Understand your target demographic, he says. Is it young professional couples, young families, empty nesters or retirees?
“And try to work with the existing floor plan,” Pabst says. “The moment you start to change door or window openings or go up, the money meter starts clicking.”