Your home is your castle, but how to add value – or not?

What adds value to your house? How to decide between renovating and selling.

feet on wooden floorboards in the middle of a renovation

Sara Wilkinson, University of Technology Sydney and Hera Antoniades, University of Technology Sydney

The government’s HomeBuilder scheme allows certain home owners to apply for a tax-free grant of $25,000 if they are spending between $150,000 and $750,000 renovating a home or building a new home. Eligibility criteria are strict.

The scheme has boosted renovation talk in some circles (although, as CoreLogic has pointed out, it may merely bring forward works that were already planned).

Here are some questions to ask yourself when trying to decide between renovating and moving – and how to add value to your existing home.

What adds value to a house?
Property market observers advise updating or renewing bathrooms or kitchens – even small fixes such as replacing a cracked or dated splashback, replacing a bath or adding skylights can go a long way.

Think about easy repairs that create an invaluable good first impression – a fixed-up fence, a new carpet or resurfaced flooring or even good old decluttering.

But remember you’ll only qualify for HomeBuilder if you plan to spend at least $150,000 on an owner-occupied home worth no more than $1.5 million (CoreLogic has listed which suburbs have the most owner-occupied properties under $1.5 million).

Get expert advice before you dive in. Shutterstock

Factors to consider if you’re thinking of renovating
How long till you retire? How secure is your employment? Thinking carefully about your earning potential between now and retirement will help you understand what you can borrow and afford. If you are planning to stay, you will get the benefit and enjoyment of the renovations.

Do you need to stay close to school or work? If that’s a consideration, renovating may be worth more to you than buying further out.

Look closely at what your property is worth (there are plenty of online calculators) and keep track of how much similar local properties with one extra bedroom or bathroom sell for. That will give you a sense of the value-add to your home equity that a renovation might represent.

Be honest with yourself about the total cost of renovation. There are myriad expenses not always initially apparent. These may include:

  • planning fees (the cost of getting a development assessed by council)
  • the cost of architectural drawings
  • consultants’ fees for environmental impact statements or arborists’ reports
  • extra costs due to a heritage listing
  • renting, if it’s not possible to live at home during renovation
  • the cost of protecting underground public assets such as water or sewerage pipes
  • extra costs caused by poor access or other limitations.

Consider the possible long-term savings of retrofitting your home to be more energy-efficient. Proper insulation, secondary glazing, draught excluders and solar PV energy are expensive upfront but will save on long term running costs. It’s likely, as energy costs increase, homes that are at least partially off grid will be more attractive and valuable over time.

And remember that for some, even with help from HomeBuilder, renovation won’t stack up economically.

Some older people may eschew home renovation to put money aside to help children get a foot on the property ladder.

Others may decide potentially expensive renovation is worth it to hold onto a family home to which children return as they get older. It might sound sentimental but the idea of Christmas in the family homestead is worth it, for some.

Tax considerations
Find out what tax breaks, if any, you might be eligible for if you renovate to divide the family home into a smaller space (if you’re keen to downsize, or enhance the accessibility of your home, for example) and adding a self-contained granny flat.

However, if the granny flat is leased out, this section of the home would be considered income-producing. Your ‘main residence’ is generally exempt from capital gains tax when it comes time to sell, but you may not qualify entirely for this exemption if a section of the property is income-producing.

You may also consider remodelling the family home into a duplex and, depending on council planning laws, convert the title into dual occupancy. However, these suggestions may complicate eligibility for the HomeBuilder grant (which seems to exclude property investors, although there’s no mention of partly converting the main place into a dual occupancy).

The best option here is to seek advice from a tax specialist.

Factors to consider if you’re thinking of selling up and buying elsewhere
Use a stamp-duty calculator and cost-of-selling calculator to get a rough idea of those costs.

How important is proximity to work? Particularly if the coronavirus pandemic has opened your (or your employer’s) eyes to working remotely, would you consider a move to a more remote area where you can afford a bigger house?

Chat with a range of real estate agents and get into the habit of reading market media coverage. Have a sense of what houses sell for that featured your desired attributes (such as more bedrooms or off-street parking).

As a chartered building surveyor, I’d advise would-be downsizers to be cautious when buying a brand new high-rise apartment, due to risks of potentially costly defects that might become apparent over time.

And remember, even if you do sell and buy a new place, very few are able to find the perfect home. You may decide to make renovations anyway.

Find someone who has been through it and ask what they’d do differently. Shutterstock

There are no easy answers. It comes down to your individual circumstances, your attitude to risk and ensuring you have a good grasp of the relative costs of each option.

Talk to a financial adviser, tax accountant, real estate agents, builders, architects and others who have been through each process about what they’d do differently next time.

Sara Wilkinson, Professor, School of the Built Environment, University of Technology Sydney and Hera Antoniades, Associate Professor, School of the Built Environment, University of Technology Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Have you considered renovating to create a granny flat or private area to rent out?

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    COMMENTS

    To make a comment, please register or login
    jk
    23rd Jun 2020
    4:37pm
    I would prefer the Government contributed to bricks and mortar housing for the homeless and needy members of our society with an option to buy on reasonable terms.
    *Loloften*
    24th Jun 2020
    5:00am
    I would prefer that our current Fed Gov understands that the vast majority of Seniors are still living in their now old homes which need many repairs + old appliance replacements.....especially essential heating & cooling. Most of us don't have $150,000 to spend on renos & our homes don't need that $ amount to just upkeep our homes (don't want the fancy newbies). This OAP's home needs approx $20,000 of repairs + appliance replacements.......non for us, just another gift for ScoMos wealthy mates/voters.
    Ozzieg
    23rd Jun 2020
    11:12pm
    I’m planning to spend less than $50,000 on renovations. The prime minister’s minimum is a joke for many of us.
    *Loloften*
    24th Jun 2020
    5:32am
    Ihis new gift re building/renovating is a farce Ozzie.....most of us don't own mansions which may need $150,000 of renovations. Our children also don't have $150,000 in their 20s/30s saved for a block of land to build on or are wealthy enough to spend $150,000 on renos after purchasing a home. When our kids buy homes vast majority can, like us, only afford homes in the "backlogs" as we did (they're now, after many yrs, no longer in the "backblogs"). This Fed govn'mt is too lazy & stupid to realise that they are gifting an enormous number of permanent part-time workers $750 wkly when most earned far less, only worked for a day or 2. I know 2 ppl who are laughing @ above, relishing the $750/wkly Jobkeeper allowance even tho' were only earning approx $200 wkly in their permanent part-time jobs. If I know just 2, how many 100,000s are relishing this "lazy gift" too.
    *Loloften*
    24th Jun 2020
    5:36am
    Oops.....think above should be "backblocks!!"
    JoJozep
    24th Jun 2020
    2:12pm
    This is a perennial question of should I or shouldn't I . A number of issues to consider have been outlined in the article above. There are many more personal consideration, most likely different from one person to the next. Here are some examples of what motivates people to move and whether or not they should renovate. Also to consider two other possibilities, to renovate your existing house and sell, or to buy an older run down place and renovate. Or do both! Here are some issues that play a part in your decision making.

    1. Your family circumstances have changed. Here some examples might be ;- Your partner needs to go into a nursing home and you need to live close by. Your kids have entered secondary college/university and you need for them easy access to the college/university. Your existing house has insufficient bedrooms and you need to expand your accommodation.

    2. Not all neighbours are the kind, caring and trustworthy type. Some neighbours do things like mowing at unreasonable hours, have dogs that bark all night, run noisey workshops, Don't keep their place clean and tidy, in fact bring down the value of your property.

    3. Aside from insufficient internal space, you could own a strata title which has minimal personal land or garage space. Security may become an issue.

    4. Your suburb could have an intolerable Council, charging high rates and providing little regular services like garbage pickup, bylaws that limit on-street parking and other restrictive practices.

    5. Your property could abutt another property with a party wall dividing the two. This has implications for fire safety, foundation problems and possible noise transfer.

    6.Your property is in a bad location. For example on a creekbed, at the end of a "T" junction on the side of a hill that could be dangerous, near large gum trees known to drop limbs or catch fire easily. Note also there are suburbs just out of the CBD that are still on septic. You are located on a main or busy street. Road noise from passing trucks or trams can become unbearable.

    7. Your property needs urgent repairs. These could be serious like wall subsidence (foundation failures), bad roof leaks, leaking plumbing.

    8.The property that comes up is well priced and overcomes your present limitations and problems.

    And so on. My advice is to seek an opinion and advice from a housing architect (see an independent operator), get background knowledge from local Estate Agents, search local Real estate papers and do as much homework as possible. Alternatively, let an experienced architect prepare a report pointing out the best option that suits you and your circumstances. Be wary of self interest here. If it's too good to be true, most likely it is. Although I worked for many renovation/refurbishment companies, they do provide free advice after discussing with you your expectations, be aware the price per square metre for extensions can be up to twice the rate to rebuild than from new. There are reasons for this, not he least of which that it's found after reconstruction starts, the existing building is in poor shape or needs pulling down in parts to make it comply with relevant building regulations. They may come to the conclusion that the house is unworthy of repair and extension, but the property has high land value, in which case it may pay to demolish and rebuild from scratch, including the extensions. Note planning restrictions apply here and you would be wise to seek advice.

    The following is meant as an extension to the above comments, as it is a huge volume I have published a book titled " A Roof Over Your Heads " which I wrote some years ago, that goes into all the detail you need to make the best choice of how to go about these decisions and what outcome best suits your pocket and lifestyle. I want no payment for the book itself except if you help me cover the cost of production and postage to anywhere in Australia (around $10.00 for a DVD,cover, postage and Contents page). In addition the DVD includes 22 other compilations: like Various Climate Zone Maps,House Building Regulations, Check Lists, Disabled Access Regulations,Construction Tips,Building Permits Checklist,Energy Efficiency,Historical Summary of a group of buildings in Carlton from 1850 to 1900, House Building Estimator for owner-Builders and much more.


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