How to Avoid Over-Capitalising Your Home Improvements

Avoid Over-Capitalising Home Improvements

For most of you, home additions, renovations and extensions are about making the home you love even more perfect.

The cost of those improvements is important, and most people have to be sure they can afford the changes they are making, or repay any extra finance they take on.

However, another consideration is also a simple, but sometimes overlooked idea: will the cost of improving your home increase its resale value by more or less than the cost of the work?

If the rise in resale value is less, you have “over-capitalised”. In theory, if you sell your home immediately, you will lose money compared to if you hadn’t made any changes.

Nowadays most properties are both home and nest egg, so doesn’t it make sense to ensure you don’t fall into this trap?

How long before you sell?

The first question to ask yourself is: how long do you think you will be living in your home?

If you intend to stay for a long time – say more than 10 years – the chances are that the increase in your property’s value will be more than the cost of your renovation.

And it’s important not to forget that you have enjoyed the extra space, nicer bathroom or better layout for all that time.

Investigate the alternative

Let’s face it, you decide to renovate because you love where you live.

However, even if you consider moving to expand, or enjoy sought-after features, all the costs of selling your house and buying a new one have to be taken into account:

  • Agent and marketing fees for selling your existing home;
  • Stamp duty on your new home;
  • Legal fees;
  • Building and pest inspection fees;
  • Moving expenses.

And there’s the possibility that you may have to rent to cover the period between the two exchange dates.

Know your area

When buying a new home, many people have researched the areas they buy in to understand property values and ensure they are paying a fair price, and we advise doing the same thing when you plan to make home improvements.

It might have been years since you did that research, and you should be finding out the current range of values of homes in your area that are similar both in the configuration before and after your planned changes.

If the top value for a three bedroom home is a million dollars, however wonderful your three bedroom home becomes, it can only challenge or exceed that amount by so much.

Get a valuation

If it has been some time since you bought your home, its value will have changed and the only sure way of knowing the current value is by asking a professional.

Combined with understanding the range in your area, this should inform the amount you plan to spend on your renovation.

Settle on your budget

Knowing the boundaries of the current value of your home and how much even the best of the similar properties have recently sold for in your area, you are in a position to decide on your budget.

Having settled on a concrete budget, you can start to work out how to raise the finances required, and choose the changes that are likely to fit within it.

Some changes are better than others

A further important factor in your calculations should be an understanding of how different types of changes impact the value of your home.

It may seem like a good idea to remove a room to create an open plan living area, but if that room was considered a bedroom, how will that impact your home’s value?

Talk to local real estate agents to get an understanding of what buyers in your area are looking for. A second bathroom may be better than an entertainment room or vice versa. Do the research.

Considered Choices

Some of this advice may seem to be saying that you should limit your choices to only things that make financial sense rather than the dream you have for your home.

We can’t stress enough that this is more about making decisions with your eyes wide open so that you understand their impact.

At Addbuild, we also feel that you can stretch your budget further by using a design and build company like us.

For a start, the design and building plans are one and the same, avoiding the potential for a costly redrawing of design plans. Secondly, we are able to tell you exactly what it will cost to build your new addition, and long before building even starts. And thirdly, we also look after the development application process.

With over 1,500 home additions and extensions under our belt over the last 40 years, we understand how to increase the value of your property whilst making it the home of your dreams. Feel free to contact us to talk about your plans, and be sure to download our free Consumer Guide to Worry-Free Home Improvement for everything you need to know before starting home alterations.