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Make top returns from renovations

RENOVATORS and auctioneers are reaching for their hammers as confidence returns to property markets.

But DIY improvements do not always add value and in some cases create cash losses. Rising prices may partly compensate for an ill-thought-out renovation, but avoiding the pitfalls in the first place will ensure the money is well spent.

The Australian Institute of Architects' inspection and design company, Archicentre, has seen the best and worst of renovations, says general manager David Hallett.

Renovating for profit requires a different approach to renovating for lifestyle.

"If you're renovating to make a dollar, and often people will sell as soon as it's finished, then you're virtually behaving like a developer, in fact we're now calling them 'reno-velopers'," Hallett says.

"When you're ploughing money into a property to sell, then you really need to make sure your money is going to go in the right places. The most important step is the concept plan and cost estimate. Even if you're only spending $10,000, you still need to make sure it's going to pay back more."

One of the best ways to decide if a renovation is going to make a profit is to ask a valuer or a real estate agent.

"Ask the expert what the value of the property is now and then ask what additional value you can add with your renovation plans. Basically, your first task is to find out if it's worth doing," Hallett says.

Propell National Valuers says renovators are expected to spend about $30 billion in the year ahead, but poor do-it-yourself renovations can reduce a property's sale price.

"Not only can renovations add zero value and put the owner in deficit by the amount spent on the outlay, but, done poorly, they can also detract value from the property, creating an even more devastating financial blow," Propell chief executive Bart Mead says.

Laorence Nohra is the chief executive of Tradebusters, which manages jobs for homeowners, and says getting the right tradespeople is crucial.

"The cheapest can turn out to be the most expensive option if you are not asking the right questions," she says.

"We all have different skill-sets. If you are doing an outdoor deck and need a carpenter, you want one who is doing decks every other day."

Nohra says the financial return on a renovation is usually linked to the property's location, but as a guide, small cosmetic changes such as painting or floors should aim to get around $1.60 back for every dollar spent.

"For something major like an extension you want at least $2 back," she says.

Renovations that deliver quick returns include a fresh coat of paint and new flooring. "Timber and laminated floors have a higher perceived value than carpets," Nohra says.

Mortgage lenders will also want to ensure you are adding value and not detracting from your property.

State Custodians Mortgage Company chief executive Heidi Armstrong says: "Investors must bear in mind that the purpose of renovations is to maximise the property's equity generally you can make higher returns from smart decisions rather than from some drastic renovations".


* Lack of research: Get several expert opinions.

* No budget: Prepare a plan that analyses the best way to improve value.

* No target buyer: If renovating for profit, appeal to potential buyers rather than your lifestyle.

* DIY: Inexperience can lead to mistakes, and professionals often work more efficiently.

* Illegal work: Missing permits, overlooked regulations and illegal works can result in a financial disaster.

Source: State Custodians Mortgage Company, Archicentre, Propell National Valuers

Posted by Karina Barrymore and Anthony Keane - News Limited on 27th May, 2013 | Comments | Trackbacks

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