Consider how much the housing market is growing in your neighbourhood, and the kind of impact your renovation might have regardless.
Renovation activity is expected to increase following the latest interest rate cut, giving buyers more money to work with. But how much value will a renovation really add to your home?
Ray White Chief Economist Nerida Conisbee said it’s not as simple as giving your house or apartment an expensive upgrade. In reality, the benefits of a renovation vary wildly, depending on what you’ve bought and the scale of the changes.
When conducting a renovation, you need to think about more than just price.
“When homeowners ask how much value a renovation adds to their property, there’s a simple starting formula,” she said: “Your home’s new value = Current value + Cost of renovation.”
“In basic terms, if you spend $200,000 renovating a $1 million home, you should expect your home to be worth at least $1.2 million afterwards. This gives you a minimum 20 per cent increase in value. But real estate isn’t always that simple.”
Here are the eight variables you should account for when considering your reno’s value:
1. An independent housing market
Rising markets can make it difficult to distinguish what worth came from your renovation, and what came from the naturally changing climate.
“The market moves independently,” Ms Conisbee said. “If you bought a house anywhere in Australia in the last two years, its value went up without you doing anything.”
Before going forward with doing up your home, consider the value a $30,000 renovation is bringing to a market which increased over the last year by more than $100,000.
Is there a ceiling for what people might spend on your house? It may be affected by the larger neighbourhood.
2. What buyers are willing to spend on your home
“Each neighbourhood has a limit on what buyers will pay, no matter how nice your renovation is,” Ms Conisbee said.
What this means is while you can put a ton of money into a renovation, it’s unlikely most buyers will spend too much over the median price for that suburb.
Ms Conisbee referred back to the earlier formula: if you own a home in a neighbourhood where homes are worth $500,000, and you conduct a $500,000 renovation, the price of the property is unlikely to sell for double. While suburbs across Brisbane are being gentrified with wealthier residents, there is often a cap on what your market will spend.
When you’re making changes to your home, think about what people will like or dislike about them when they’re seeking to buy.
3. If people will like your changes
People seeking renovated homes are more likely to appreciate homes with features actively useful to them. Some popular renovation choices may not actually appeal to new buyers, depending on the type of property or the climate it’s placed in.
“A swimming pool in a warm climate is usually more valuable than one in a cold area, and most people would prefer a pool over a tennis court at the same price,” Ms Conisbee said.
Renovations are growing in popularity, often meaning you’ll spend higher prices to get one done.
4. Rising prices
Australia’s housing crisis means everyone is feeling the pull, including the construction teams often doing the renovations themselves.
“Finding builders is difficult right now, and construction costs have jumped more than 30 per cent in many places,” Ms Conisbee said. “This means recently renovated homes often hold their value better because they would cost more to replicate now.”
When investing in a renovation, consider what you’ll be getting for your money now, compared to what you were getting earlier.
If it’s an exhaustive, time-consuming renovation, that may be to your advantage!
5. How long the renovation takes
If the home is a real fixer-upper, this may work to your benefit. If you believe there is a market for your property, a renovation that takes time means those who buy the home will not have to worry about putting that sort of effort in when they buy the place themselves.
“Renovations take time and create disruption,” Ms Conisbee said. “People who hate the renovation process may pay more for an already-renovated home than someone who enjoys the project.”
Location is one of the most important factors when buying a home, and it needs to be considered when renovating one.
6. Where your home is located
“The old adage ‘location, location, location’, remains true even after significant improvements,” Ms Conisbee said.
Is your home in a quiet part of the neighbourhood, or is it by a busy highway? Is it close to public transport, and is there parking accessibility? These factors will be huge influences on the final price of your home, no matter what you do to pretty it up.
Who are the people who might purchase your home? Are you building accommodations for them?
7. The demographic you’re selling to
When you look at the home you own, consider the target audience who want to buy it.
If you’re seeing people just getting into the housing market, what features have you made available to them? If you’re seeking upsizers, what qualities would they upgrade their home for?
“Young families might pay a premium for an additional bedroom, while downsizers might value single-level living and low-maintenance features,” Ms Conisbee said. “Understanding who typically buys in your area helps predict which renovations will add the most value for that specific market.”
How seamless does your final renovation look with the rest of the home?
8. If the job is finished
When you renovate a home, it’s important to consider if the final product is going to look consistent.
“Partial renovations can detract from value,” Ms Conisbee said. “Mixing old and new elements sometimes highlights what hasn’t been renovated. A brand new kitchen alongside a severely dated bathroom can make the unrenovated spaces look worse by comparison, potentially detracting from the home’s overall perceived value.”
When renovating a house or apartment, go into it considering what you can afford to spend, and if that will be enough to create a consistent look across the whole place. If you don’t believe you’ll get back what you spent on the renovation, it might be worth evaluating different options.
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