Do renovations always add value?
Interesting statistics released from the latest edition of the HIA (in it’s Renovations Roundup report) predicts that home renovations will become an increasingly important part of the residential building industry over the next few years. “2016 marked the strongest year since WWII for new home building starts in Australia but our forecasts indicate that activity is set to decline on this front over the next three years,” commented HIA Senior Economist, Shane Garrett. “In this context, our industry will become more dependent on work related to home renovations activity. Many are surprised to learn that renovations currently account for about one third of all residential building work. By the end of the decade, renovations activity is likely to represent some 42 per cent of all residential building activity.”
It’s no surprise that Australians love their DIY, choosing to stay in their homes rather than waste monies on the expense and costs of moving (stamp duty being a major disincentive) and especially when it comes to detached houses. Renovating these accounts for the majority of renovations, with money being spent most on big-ticket items including kitchens, bathrooms, repairs and maintenance. But do renovations always add value?
Obviously, it depends on a number of important factors, as every property is different and knowing what adds/detracts from value is imperative if you are looking to make a profit in this competitive field. Renovating to add value is very different from renovating for lifestyle, however, and should be approached accordingly. Not all renovators are aiming to onsell or cater to the buying public, so what suits their lifestyle here and now is what is most important. Generally, the following types of renovations done well (and preferably by licensed tradesmen) should add value to a property, however there are always exceptions to any rule here. In my experience, the following features are the driving factors that buyers will ultimately pay more for when considering property for sale:
- SPACE. It goes without saying that creating extra floorspace by extending the footprint of a property is by far the biggest drawcard for buyers to pay more. In some suburbs of our capital cities, for example, the inclusion of one extra bedroom can add anywhere between $80-200K on top of the price. Creating space for parking, especially within inner city areas, is also a boon for buyers for which they will happily pay more for.
- KITCHENS AND BATHROOMS. Buyers know the value of these big-ticket rooms and will pay accordingly if they are done tastefully for the buying market. There are few home owners who enjoy going through the process of having no cooking or bathing facilities for weeks on end, so not having to plan and spend here is an area where renovators can profit.
- LANDSCAPING. Australians are predominantly an outdoors lot when it comes to entertaining and having an attractive, usable and well-designed al fresco area and/or garden can be a boon for value-adding. The creation of a level yard for children, for example, in a family-driven area, or the addition of a beautiful garden oasis can really add emotional value to a property. Improving outlook also is a winner here if the home looks out onto manicured greenery.
Buying a property can be fraught with emotions for the purchaser, thus making it difficult to pinpoint what it is that buyers are willing to pay a premium for. Having bought property for hundreds of home owners and investors over the past decade, I know that well-planned and executed renovations certainly can pay for themselves and earn home owners handsome rewards over and above their initial investment. However, in a hot market like Sydney, for example, quantifying whether or not the profit is due to the outcome of the renovations and/or the current rising market can be tricky.
If you are planning to renovate and want to maximize your chances of profitability here’s my top tips:
- PLAN AND SEEK PROPER APPROVALS: Your add-on pool room, converted garage-studio-granny flat or basement bathroom may well add space and be desirable but is it council approved? Squeaky-clean certified renovations are always going to be worth more for obvious reasons of compliance and insurance.
- SEEK OUT WHAT BUYERS WANT: It may sound obvious but it’s futile adding a huge shed if it’s a level yard buyers are predominantly after in your area. If a bath floats your boat in your unit, and you’re ok with the share laundry, but your purchasers would prefer a washing machine then take note. Ask local agents what buyers are chasing, and cater to these demands.
- USE PROFESSIONALS: Unless you’re skilled in particular trades and have plenty of time to save on labour costs, use a professional tradie. Too many renovations have that classic DIY element, which can actually impact and detract from value.
Clever, well-timed planning, research into the right trades and materials for works, as well as a healthy dose of enthusiasm and creativity can reap large rewards in the renovation stakes.