Home Improvements: Adding Value without Overcapitalising

Property owners are obligated to protect and enhance their asset – particularly when they’ve borrowed money to own it. Additional investment must be carefully planned to boost equity rather than erode it. But where should homeowners start to ensure they capture the best return on money spent?

A lot to think about

There’s no secret formula to gauge the return on home improvements, particularly as house values are largely determined by broader economic conditions and market sentiment. And we’ve all heard stories that relate how one renovated property sold for the same price as the unrenovated house next door. No one knows value better than a purchaser (ideally two competing purchasers). There are no guarantees.

Before you commit to a home improvement plan, ask yourself these questions:

• What’s your house worth? This will put broad parameters to new capital earmarked for improvements
• If you’re thinking about selling, what are buyers in your area looking for? What are they expecting to pay for houses in your area and when are they likely to pay a premium? Local knowledge will help you direct your investment
• Are your improvements geared to support a rent increase? In which case an extra bedroom or bathroom might make most sense
• Do you plan to remain in the house long term? If so, any expenditure will be offset by capital gains in the future

With these questions in mind let’s look at the obvious targets for improvement.

Kitchen: Is it functional? Modern? Prospective tenants and buyers will often look here first to make a quick assessment of adequacy and whether, a buyer would need to spend money.

Good ‘as-is’ or top priority for modernisation? A modest house doesn’t need a luxury kitchen. Consider lower cost improvements, such as doors, handles, benchtop, and appliances, before committing to a major kitchen renovation. Even when your property is dated, the kitchen should still look modern, energy-efficient, and perhaps even a place to entertain guests.

Additional room: Adding a room is expensive, but it can elevate a property to a whole new search bracket. Sometimes costs don’t add up. For example, you could spend $4,000 per sq. metre on an addition, which adds a modest $2,000 per sq. metre to property valuation. Be careful. A more conservative approach would use the existing building footprint, changing internal walls without adding load bearing walls.

Bathroom: A disaster scene? Or will a few cosmetic improvements do the job? Major upgrades are a minefield of unanticipated costs (think plumbing and DIY relics made evident when the tiles are ripped up). It’s easy to over capitalise in this part of the house. Spending $25,000 on a bathroom won’t make financial sense for a $800,000 house in a suburb that doesn’t have any properties selling above $1.2 million. Never mind that potential buyers often prefer to upgrade the bathroom themselves – your decorative tastes are not necessarily theirs. Less is often more. Think grouting corners and edges, replacing taps and showerheads, adding a mirror.

Deck: Decks are a far cheaper way to extend living space than modifying enclosed spaces. A simple pine deck will set you back approximately $500-$600 per m2 for a deck under 1m and up to $1,000 per m2 for decks above 1m.

Consider your geographical area. Homes buyers will likely place a higher value on a deck for homes located in warmer climates. They will imagine summer evenings on the deck, coveting the extra square footage. Critically, a deck should function as an extension of your house – not as an appendage.

Kerb appeal: There’s no escaping first impressions, so be sure your house makes a good one. Evaluate the condition of gates, the mailbox, pathways, the front door and other entranceways, garage doors, hedges, and gardens. Clean, paint, or replace. You don’t have to spend a fortune to get these things looking good. Don’t neglect landscaping – plants play a significant part in making your entryway eye-catching. The more architecturally ambitious should consider cladding. Many options are low-maintenance, cost-effective, and can make a huge difference to overall first impressions.

Home improvement is an emotive preoccupation that sometimes clouds rational assessment. Vendors expecting a positive return on their investment can be disappointed. Talk to Brendan Goodwin to prioritise improvements most likely to maximise sale price.

Contact Brendan on 021 278 7770 or email brendan@goodwins.co.nz