Renovating your family home can be a great experience – or a completely overwhelming one that breaks the bank when you start overspending. You want only the best for your primary place of residence which often leads to over capitalising. There are strategies you can use to ensure you create a beautiful place to live without spending too much money.
Why Do You Want To Renovate Your Family Home?
There are some compelling reasons to renovate your family home. If you are in the business of renovating for profit, you can often be spending all of your time creating beautiful homes for everyone else. Your home should match the properties you are working on and improve your quality of life.
When you live in a beautiful home that is the result of your renovating genius you improve your asset base. It creates a starting point that can be leveraged to do other projects. The equity you have in your own home can be used in other ways.
You may find yourself overspending or spending more than you normally would when you renovate your family home. This might be appropriate if it is a place where you are going to live for a long time. But, when you are working on your own home, your decisions are often coloured by emotion, resulting in over capitalising.
Be sure to create equity rather than spending money you are not going to recover.
Some people believe the family home is not an asset. I disagree.
Your home absolutely is an asset and it should be treated as one. For most Australians, their home represents most of their wealth and they hold onto it for a long time – the average time is seven years. You can build a lot of wealth organically if you are careful with what you spend on it.
Your profit margin on selling your own home is usually tax-free. It can pay you to renovate before putting your house on the market you will likely be increasing the value of the property by one hundred thousand dollars up to five hundred thousand if you are smart about what changes you make and how much you spend on it.
The Process Of Renovating Your Family Home To Reduce The Risk Of Over Capitalising
Step #1: Inspirations and Decisions for Family Home Renovations
The first step in any renovation project is to make sense of your inspiration and decide how you want to apply it to the job. Ideas change and evolve. If you don’t spend a significant amount of time figuring out what you want to achieve, you may find yourself renovating your renovation – pulling things out and redoing them because you have changed your mind. A focused mindset about the things you want to renovate in your own home will reduce the risk of overspending.
Step #2: Your Renovation Wishlist
Create a renovation wishlist of what you want to do and the finishes you want to use. You also need to decide on the scope of the project. Are you going to be doing additions or are you going to be reworking the floor plan within the current building envelope? What are the problems you want to solve – is the property too small or does it have limited functionality? Understanding the challenges involved in your own home renovation project can help significantly to avoid overspending.
Step #3: Visit The Council for Renovation Research
Before you start executing your plan, it is crucial that you do your research. Go to your local council and find out what you can and can’t do. Learn what requires approval and what doesn’t. Check for any past DA or planning applications for renovations the previous owners might have done. If you are planning any additions, find out what the process is. It varies from one region to the next. Knowing what is and is not allowed to do in your region when renovating your family home can save you from budget overspending.
Step #4: Get Advice From A Local Estate Agent
Part of your research is to get a local real estate agent to come and have a look at your home and give feedback on it. They will give you an appraisal and some advice on the changes you are planning to make. The agent will be able to tell you whether or not these will add value. It doesn’t mean you have to listen to their advice. If the renovations you are planning contribute to your family’s quality of life, then they are worth it to you.
Step #5: Visit Open Inspections Of Renovated Properties
Have a look at what other renovators have done in your area. Go to some open inspections of renovated properties to get an understanding of the type of things buyers are looking for in your area and what they will pay for it. From that, you will be able to calculate what your property will be worth once the renovation is complete. The value of the renovated property helps to determine your budget which in turn will help you renovate your home without overspending.
Step #6: Determine The Profit Margin on The Home Renovation
You can determine how much value you will be adding to your asset by comparing the valuation you received from the real estate agent and the value of renovated properties currently on the market. It should equate to a minimum of 30% of the current value of the property. From there you can figure out how much you want to commit to a renovation.
Step #7: Getting Finance for a Home Renovation
Now you know how much you are willing to spend on renovating your family home you need to get finance. If you don’t have the money you need, you will have to speak to a finance broker to secure a loan.
Step #8: Effective Design for Your Renovation
The design is the face of the renovation. Before you start building, it is useful to get a concept drawn – a sketch of the floor plan. It gives you an idea of how the new floor plan is going to work.
An architect is the best person to collaborate with to get the concept done. They are trained to use space and light to create a concept that is both beautiful and functional. If you need plans drawn up, you can take the concept to a draughtsman who is trained in technical drawing. Detailed plans are required if you need to get approval from the council for any of the changes you are planning to make.
Step #9: Determine What Your Builder Will Be Doing
There are some things that you can do yourself or have your trades do for you, but some things have to be done by a builder. This gives you two options: Hire a builder only for the elements that have to be completed by a qualified professional and have the rest of the project done by your trades, or have the builder complete the entire project.
The first option is the cheapest way and the one I normally recommend. The builder does the structural changes and gets the property to a stage where the walls are sheeted, the ceilings are in and the doors and windows are in. And then your tiler, plumber, electrician and handyman can come in and complete all the finishes. By hiring specialised trades to finish the job you not only ensure a high quality of work but also keep yourself from overspending when you renovate your family home.
Step #10: The Renovation Tender Process
Once you have established the scope of the project and who will be working on each element, it is time to engage a builder and/or your trades. You will need to bring in two or three builders and/or trades to give you a quote on the project. There is a lot of information on the tender process available on this website if you need more details, but one of the most important things here is to get at least three quotes.
Step #11: Know Your State’s Laws On Homeowner’s Warranty
In case you don’t know what this is, a homeowner’s warranty is a form of building insurance. The rules and regulations vary in each state. So check with your local state and find out what the laws are and make sure that you follow up. You cannot get this insurance yourself. Your builder is responsible for making sure it is in place. The law states that he cannot take your deposit until the insurance has been secured.
Step #12: Paying The Builder’s Deposit
Make sure that you only pay the legally required deposit for the value of the contract to your builder. Builders have been known to front-load their quotes so that you end up paying a bigger deposit. This can become a problem if your builder goes AWOL or goes broke and you have paid for more than they have done. You will be left overspending for your home renovation project.
Similarly with the progress payments as the build advances. Ensure you are not paying more than you have to at each stage. A construction loan from the bank can act as a form of insurance. The bank will only release funds once the work has been completed.
Five Bonus Tips
- You will need to make lots of decisions for colours, finishes, and other details in the project. If you don’t feel confident about these, I suggest that you engage a colour consultant to help you get the colours just right. They can advise on paint colours, flooring covers, and the bench stone so you can select it all upfront. When your builder comes in you’ve got it all on hand and ready to go.
- Before you start your renovation make sure your house is adequately insured. Public liability insurance is particularly important.
- Do due diligence on your builder to ensure they have all of the right insurances in place so if something goes pear-shaped during your project everyone is covered.
- Once the renovation is complete, let your insurance company know the value of your property has increased so the value of your building insurance matches the value of your new home.
- Bring your real estate agent back for another appraisal and have the bank do a valuation on the property so, should you want to sell it you have all the information at your fingertips.
You Can Live In A Beautifully Renovated Home Without Over Capitalising
I have a cheat sheet for you to download and keep handy. It is there to help you through the process of renovating your family home. While spending a bit more on renovating your primary residence to make sure it suits your lifestyle, you don’t want to overspend and jeopardise your chances of making a profit when it comes time to sell it. You can avoid this by following the steps I have outlined for you and making sure you have done your homework and have the information you need to make smart choices at your fingertips.
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