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Australian’s love renovating — in the 2015/16 financial year, we spent a record $7.7 billion on updating our properties. Renovations are exciting, but they are also complex and a big financial investment.
It’s important to carefully plan and understand all the considerations around renovating. Here’s everything you need to consider when planning a renovation.
What are the benefits of renovating?
Make sure you have a solid reason to renovate, because the process can be financially and emotionally draining. However, with careful planning there are a number of great advantages to renovating your home:
- Added value: A well-executed renovation can add up to 10% more value to your property. This can be leveraged especially when it comes time to sell.
- Personalisation: You can make your home more comfortable, stylish and functional to suit your needs. Renovations can also be as big or as small as you want — you could put in a new kitchen or knock half your house down, it’s totally up to you.
- Save on moving costs: By renovating instead of moving, you can save on stamp duties, agent and legal fees.
- Upgrade your essentials: You can save on utilities by making your home more environmentally sustainable.
How much should you spend to renovate a house?
We've all heard renovation horror stories of budgets being blown-out and the process taking twice as long as it should. The truth is, every house is different and there are no hard and fast rules around approximately budgeting for your renovation costs.
The key here is planning well, doing your research on what products you’ll use, and sticking to that plan as strictly as possible. If you’re looking for a rough estimate, these figures may help guide your initial budgeting:
- Bathroom: $10,000 - $35,000+
- Kitchen: $10,000 - $45,000+
- Living Room: $10,000 - $15,000+
- Garden and deck: $2,000 - $10,000+
- Master Bedroom: $2,000 - $35,000+
People often become so caught-up in budgeting for materials, labour and design (which make up around 80-90% of your costs) that they fail to plan for the hidden costs associated with renovating. It’s important to always include a 10-20% contingency budget to cover council fees and any alternative accommodation you may need.
Home loans for renovations
There are different types of financing when it comes to renovations, all suited for different circumstances. Whether you’re in the business of flipping houses for a profit or looking to renovate your own home, financing a renovation requires a good deal of research.
To help you determine which type of loan is best for your specific financial situation, check out the following loan options that will help finance your home improvements.
Refinancing existing home loan
The smart approach is to place the renovation funds into an offset account so you can avoid paying interest until you need to draw funds out of the account. You could also use a line of credit — with this, you could basically access funds as you need them and interest is charged on the balance owing on the account.
It’s important to remember that refinancing is almost the same as taking out a new mortgage, so it’s imperative you shop around for the best rate. If this sounds like the best option for you, Joust marketplace is a useful tool that helps you access the best competitive rates on the market
If you don’t have enough equity in your mortgage to borrow the necessary amount for your renovation, a construction loan could be your next best option.
A construction loan is determined based on your property value after renovation. Its structure is such that loans are drawn down progressively as construction invoices come in. The loan adopts an interest-only structure for a certain period of time, before reverting back to principal-and-interest.
Another option could be to take out personal loans but in most cases, this isn’t advisable because of the high-interest rates. Typically, these rates could go from 6% to more than 18% depending on the product and the borrower’s history.
Personal loans come in two forms; secured and unsecured. Secured loans are backed up by an asset such as property or a term deposit. As such, they are much cheaper than unsecured personal loans and could be a safer option.
Pay as you go with a credit card
If you’re undertaking smaller renovation projects that are cosmetic and short-term, a credit card may be an easy option for you.
Credit cards are a simple way to pay for renovations. This convenience, however, usually comes at a high price, with interest rates hovering around 17%. That said, there are some cards that offer rates under 10%. You should consider your renovation costs as well as the project renovation time frame before choosing this option.
If your renovations are smaller in scale and could be considered ‘weekend renovations’, an overdraft loan could be the right option for you.
In essence, an overdraft would be attached to your nominated account and will allow you to draw up to the credit limit. It will come into effect once you have passed the limit. Rather than paying interest on the entire amount, you only pay interest on the money you use.
Fix and flip loan
This type of loan is created by lenders specifically for renovators that flip property for a living.
The fix and flip loan term is usually one year and it gives you the hard money you need to invest in property. Given the loan term is a year, this means your renovation is limited to a certain time frame.
Renovating mistakes and how to avoid them
There are a few big blunders people make again and again when renovating:
- Ignoring market trends: You probably want to renovate your house in a style that suits your own tastes and creativity. However, this decision may come back to bite you down the track if you wish to sell. Try to find a balance between your tastes, and what the market trends are, otherwise you could severely decrease your potential resale value down the track.
- Not seeking approval: You could face a hefty fine if you’re caught building an extension without getting approval first. This can also affect your ability to sell down the track. And if you’re interested in doing a DIY renovation, it's illegal to attempt your own plumbing and wiring – unless you happen to be a qualified professional.
- Cutting corners: Choosing the cheapest builder, not addressing small fixable issues, and using cheaper materials may all be tempting when you’re trying to stick to your budget. However, more often than not, these decisions end up costing more in the long run when they need to be readdressed or repaired.
- Renovating the wrong spaces: Renovating does not guarantee an increase in market value and it’s important to research what type of renovation brings value to your property type and location. For example, you may have renovated the bedroom whereas properties in your area draw greater value from outdoor spaces.
Our top-5 easy renovations tips to boost value
Feel like you’re ready to renovate? Check out our top five tips to boost the value of your home before you get started.
Update your kitchen
Kitchens are usually one of the biggest selling points on a listed property, as they are equally valued for their functionality as well as their entertainment potential. If you’re looking to DIY, the biggest impact can come from some of the most commonly overlooked details.
New taps, knobs and handles can go a long way towards giving your kitchen a contemporary feel, and are all relatively inexpensive to install. Go one step further and fit new cabinetry doors that tie in well with your home’s overall colour scheme. Add a statement light fixture or a series of stylish pendant lights over your counter, and you’ll feel like you’ve got a whole new kitchen.
Create an outdoor living sanctuary
Make the most of our great Australian weather by investing in an outdoor living area that you’ll want to relax in all weekend. Whether it’s a sleek timber deck, fans, or down‐lighting in a gabled alfresco ceiling or an outdoor kitchen fit‐out, there are many ways you can transform your patio into your home’s best feature.
The best outdoor living areas find the right balance between letting nature in but keeping the elements out. Consider café blinds and outdoor heaters to offer some protection from extreme weather, and fill your space with shade-loving plants for a resort-like feel.
Spruce up your window treatments
Whether you’re adding sheers, pelmets, shutters or blinds, sleek window treatments will definitely add value while giving your home a polished look. If your windows are standard sizes, many blinds and curtains come ready-to-hang. Choose options that will also help with the heating and cooling, as windows are the biggest source of heat-loss and gain in a home.
Install quality lighting
Natural lighting is always best, but having good quality light fixtures are a close second. Every room in your house will gain a huge value boost from the addition of quality, contemporary light fixtures. Don’t forget, not all lighting has to come from the ceiling — consider wall sconces in living areas or strip lighting under cabinets for a cool touch.
Refresh your walls with a lick of paint
Is there anything a lick of paint can’t improve? Ask your local hardware store’s paint experts for help choosing colours that will enhance your home’s best assets. Take extra care to make sure your walls have been properly patched, sealed and prepared and you’ll be left with a perfect finish.
Ready to find the best home loan rate for you? See how Joust can help here.