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RENOVATING IS NOT ALWAYS THE BEST WAY TO ADD VALUE



As a property investor, we are generally looking at ways to increase our property portfolio and net worth. But, should we even consider renovating as a viable strategy?


Here are three reasons to re-think the old and tired strategy.


True Cost

We have heard the term, kitchens and bathrooms sell houses, but at what cost?

According to the 2019 Houzz report, the median cost of a kitchen renovation was $20,000 in Australia.The median cost of a bathroom renovation was also a further $12,000 [1].


$32,000 is a significant amount of capital that could be potentially utilised for an initial deposit for an investors next property purchase and growing one’s portfolio. When this $32,000 capital is combined with the use of leverage; property investment returns can be extremely high, and utilised to build a substantial asset base.


Unforeseen Costs

When looking to undertake a renovation, there are many potential unforeseen costs that could easily occur and blow out the overall budget. Should such an event transpire, this would drastically minimise any chance of turning a profit when it comes time to sell or potentially undertake a re-valuation to extract equity.


Here are some of the more common reasons people experience cost blowout during the renovation process [2}:

  • Upgrades to electrical work, if the house is old and needs rewiring

  • Fixing previous work that wasn’t done correctly

  • Structural upgrades to comply with building regulations

  • Costs for corrections e.g. moving plumbing, miscalculating materials or relaying tiles


CONTINGENCY BUFFER

A critical component of budget planning is to have a contingency buffer of funds to ensure you can cover any unforeseen costs and remain financially stable during the renovation process. As a rule of thumb, you should set 10-25% of your overall budget aside for any unexpected costs that may arise during the process [3].


As an investor, always be looking at the big picture and potential ways to grow our property portfolio.


Considering the true costs of renovating, along with any potential unforeseen costs that may occur, and factoring in a contingency buffer, it might be best to not renovate at all, and keep your capital in your back pocket for the next investment property.


Jarryd Gauci – Property Investment Consultant

P: (02) 9939 3249

E: jarryd@meridianaustralia.com.au


References

[1] Overview of Home Renovation in 2018 and 2019 – Houzz and Home Australia

http://st.hzcdn.com/static/econ/en-AU/HHInternationalAustralia19.pdf

[2] Expecting the Unexpected: Renovation Cost Blowouts – Peter Gurovski

https://www.roomfour.com.au/renovation-cost-blowouts/

[3] The importance of a good contingency bugger – My State Bank

https://mystate.com.au/about-us/our-company/latest-news/details/articleid/109/the-importance-of-a-good-contingency-buffer

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Meridian Australia specialises in comprehensive residential property market research and analysis. Our meticulous approach to property investment is to guide our clients to make wise investment decisions.

02 9939 3249

618 Bourke Street, Surry Hills, Sydney, 2010

info@meridianaustralia.com.au

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