Renovating your home

Why Renovate Your Home?

Wednesday, January 6, 2016

If you’ve never tackled it, renovation can seem like a financial luxury – unnecessary and unaffordable. After all, how much difference could it really make to your home? And would you really be able to cover the costs to do anything substantial?

But, things are not always as they seem. The answers to those questions may actually surprise you.

To be clear – ‘a significant difference’ and ‘yes’.


Why Renovate?

Firstly, you can add thousands of dollars of value to your home with carefully considered renovation. Many thousands, in the right circumstances. You can even handle it yourself, if you’re truly intent on cutting costs and devoted to being especially cautious (as we’ll cover, renovation can be a dangerous pursuit for the DIY set).

Secondly, there are more than a few financial options available to you when you’re looking to renovate your home or investment property (renovation can actually really help speed up the process of recouping a property investment, if done correctly). If you’ve managed to afford a house and a home loan, you can definitely afford to renovate a house.

In this article, we’re going to briefly look over the world of property renovation. We’ll examine what renovations you should consider and why you might consider them (including a look at how you might approach them DIY). Then, we’ll examine how you can go about safely securing financing for it – looking into things like renovator loans and refinancing options.

In the end, you’ll hopefully see that there’s no reason you can’t reap the rewards of renovation with your own home.


What Should You Renovate?

As we’ve said probably too many times already in this article, renovations can add a great deal of value to your home. But, we should be clear. They need to be the right renovations. Otherwise, they could easily make your home less valuable.

(You get no points for aspirational renovations. That verandah you never felt like finishing. for example? Not as valuable as you might hope.)

That said, it’s entirely possible that you might want to renovate without any intention of ever selling. You may just want extra space or a nicer area. But, if you are thinking about renovation (particularly if you’re thinking about taking out a renovation loan), it doesn’t mean you can’t be clever about your renovation. Why not ensure that extra space you want is as valuable to you monetarily as it is to your comfort and lifestyle needs?

So, with that in mind, what renovations should you make? Well, as a suggestion, you could try:

Tidy Up The Front – a lot of renovations are more about perceived value than actual value. This is a classic example of that phenomenon. If you’re willing to put some serious effort into cleaning up your garden, washing and repainting your house’s exterior, fence and letterbox, giving your roof and gutters a bit of a clean and just generally adding a bit of TLC to your property, you can potentially add more than $40,000 to your home’s value.

Add An Outdoor Area – whether it’s a deck, verandah, patio or terrace, an outdoor area is a guaranteed way to add value to your property. The cost can vary (particularly if you’re construction-savvy enough to do a decent job on your own) but you will almost always see a significant return on your investment. Some experts estimate it adds up to $10,000 to a home – others go so far as to say $100,000. Just remember – in order to be of greatest use and value, your outdoor area should be a natural outgrowth of your existing home or property. It should be a similar style and extend from a communal area; not a bedroom or private area.

Improve Your Kitchen & Bathroom – universally considered focal points of interest for prospective buyers and tenants, revamped kitchen and bathroom areas can make a subtle but crucial impact in adding value to your property. You can revamp these areas in a range of ways – from simply adding a splashback tile arrangement to your kitchen to completely refurbishing your bathroom to throwing a coat of paint on both. Just be careful not to over-invest. Like your outdoor area, your kitchen and bathroom renovations should be a natural part of your house. You shouldn’t have a kitchen that’s worth more than the rest of the house, in other words.

Add An Extension – an extension is probably one of the most significant ways to add value to your home. If you add a second storey, a new bedroom, a new bathroom or a new garage (or some combination of the above), you not only can add value to your home – you can completely change the overall pricing bracket your home is viewed in by agents and buyers. In this regard, you do need to be careful not to over-invest. If every home in your street is 2-3 bedrooms, for example, most buyers looking in that area will be in the market for that size home. But, while being aware of those concerns, you can still add significant value to your home with a new bathroom or a new garage. In actual fact, a 2012 survey of Australian estate agents found that a second bathroom is one of the top prerequisites for home buyers in Australia.

These are just some options, of course. You can also consider hiring a landscaper or concrete rendering over your house’s old brick stylings to modernise it. Whatever you do – just make sure you’re aware of how much it’ll cost and how much it’ll actually add to the value of your home. If in doubt, speak to a real estate agent about it.


How Should I Renovate? Can I DIY? Should I?

As we’ve already covered, renovation is becoming increasingly popular in Australia. Unsurprisingly, DIY is racing along in a similar direction. In 2014, Australia’s DIY-related retail spending increased by 11% over that of the previous year. This was the biggest increase in spending that sector had seen in a decade. It’s likely that, if we’d simply mentioned renovation, you’d have already been wondering if you could do it yourself. You could have been contemplating it for a while.


But – should you?

Well, it’s entirely possible. Things like adding tiles to a kitchen or building a back deck or handling your own landscaping are all well within the grasp of the average functional adult. A full fledged extension might be a bit more ambitious. If you’re dealing with electricity or water, for example, it’s best if you defer to the experts. You could even get into legal trouble if you don’t. But, even with smaller projects, you should be careful.


For example, whatever your project, you should –

Have A Support Network – you may want to do it yourself. You shouldn’t do it alone. A support network will keep you safe and help you avoid silly mistakes. To build a solid support network, extensively research (e.g. techniques, equipment, safety, legal renovation practices) what you want to do and call upon family and friends for advice and assistance throughout the process.

Plan It Properly – earlier this year, UK’s Santander Insurance reported that 13% of DIY projects go wrong in some fashion. Most often (25% of the time, to be exact), it’s simply a case of a project taking longer or costing more than anticipated. To this end, one of the smartest things you can do when contemplating a DIY project is to spend some solid time figuring out how long it will take, how much it will cost and whether that’s acceptable to you.

Stay Safe – injuries can be incredibly common with DIY projects. And, while it’s understandable to think that such injuries are either minuscule or a product of working with hefty equipment, it’s simply not the case. A 2013 study found that 75% of DIY injuries simply occur conducting general garden, home and vehicle maintenance – and two of the most common factors in DIY injuries were ladders and lawn mowers. Don’t think you’re immune. Always read and follow instructions. Always wear appropriate safety equipment. If in doubt, consult an expert. Your verandah isn’t worth your thumbs.

If you stick to those guidelines, you should be able to determine relatively easily whether or not your DIY dreams are achievable.


How Do I Afford It?

Of course – none of that really matters if you can’t afford to pursue your dream renovation project. Which brings us back to what we were wrestling with at the start, really. Is renovation too much of a luxury? Could you ever afford it? And, again, we’re going to emphasise – absolutely. There are actually several different ways that you can fund your renovation.

For example:

Refinance Your Existing Home Loan – if you’re currently successfully paying off your home loan (and especially if you’ve been doing so for a couple of years), you may want to look at simply re-working your existing loan arrangement. There are a handful of ways to do this, depending upon your circumstances.

Firstly, you can simply apply for an increased loan amount. This will be placed on your existing loan rather than existing as a whole new loan. Different lenders will refer to this using different terms. Some will call it a renovation loan. Others will describe it as a top up. Ultimately, it amounts to the same thing. Your loan increases and you use the additional funds to renovate your home.

Secondly, you might be in a position to take advantage of some existing features of your home loan. Specifically, cashback/redraw. If your home loan supports cashback/redraw and you’ve been making additional repayments to your loan, you might simply be able to withdraw that additional money and use it to fund your renovation project.

Finally, you may want to speak to your lender about refinancing and changing the nature of your home loan. For example, a line of credit loan allows you to use your home loan like a credit card account. If you refinance and change your loan to a line of credit loan, you can easily use it to pay for your renovation.

Your ability to pursue most of these options will, however, depend on your current equity with your property. If you’ve paid off a substantial amount of your loan, you’ll be in a better position to make changes to that loan for renovation purposes. If not, you may need to consider other alternatives.

Construction Loan – a construction loan would be an example of another alternative. A construction loan is typically used to fund the building of a whole new house but it can also be used for the purposes of renovating an existing property. A construction loan is based on the final value of your post-renovation home. (So, in this instance, you’ll have to be certain your renovations are adding value to your property.) With a construction loan, you’ll draw on the funds as you need them to pay for respective materials and services (rather than receiving as a lump sum).

Personal Loan – many lenders offer both secured and unsecured personal loans for limited amounts of money. If you’re DIYing and only need a small amount of money for materials, you may want to consider a personal loan. However, even if it’s only a small amount, you’ll probably still want to secure it against property, assets or term deposits. Otherwise, you’ll almost certainly be expected to pay a higher interest rate.

Credit Card – it’s entirely possible to fund your renovation via credit card. However, it’s not especially advisable. If you aren’t in constant control of your repayments, you could easily end up spiralling deeper into debt and paying significantly more for your renovation than it is worth. If you are intent on using a credit card, be strategic about it – plan your repayments in detail, take advantage of interest-free periods.

Overdraft – an overdraft is a feature of some savings accounts wherein, when your balance hits zero, you can continue withdrawing money up to a certain limit (which you then repay with interest as you would any other loan). The advantages of an overdraft are that it can be (relatively easily) be added onto your existing transaction account and you will only ever pay interest on the specific amount of money you’ve spent on your renovation. The disadvantage is that, like credit cards, you can end up spiralling into deeper debt if you don’t manage your funds with care.

But, really, that much is true of all of the above options. It’s always best to be cautious.

In any regard, you can see that there are plenty of ways for you to fund your renovation. It’s simply a matter of looking at your finances, looking at your plans and seeing what works best for you and your situation.

Good luck!