If your property is outdated and you're confronted with the dilemma of buying a new property versus simply staying put and renovating your established home, deciding which option is more cost-effective for you will depend on the size of your renovation.
We’ve outlined the pros and cons of property buying costs and renovation expenses. It’s a good idea to look at your personal situation as well as the costs involved for both choices.
Aside from the obvious cost of your dream home’s purchase price, there will be a few other upfront costs involved, some of which you may already be familiar with:
How much does all of this add up to? Read our guide to the hidden costs of buying a home.
Having said that, there are also plenty of costs to think about when renovating, you'll need to factor the below into your renovation budget:
Thinking of building a new home? Read our guide to construction loans here.
Deciding whether you should buy a new property or renovate should align with your financial objectives. It can be more cost effective to renovate your existing home if you intend to make some minor upgrades. A big deciding factor can be if you’re already living in the location of your dreams and intend to live there long term, staying put and making some changes to your current home can be more sensible than buying a new property.
As well as that, if the value of property in your area is growing, it may be worthwhile to renovate now as a capital growth occurs for a future investment. If you do decide to move you can use this as an investment property. However with renovations, you need to consider your costs carefully to ensure you do not overcapitalise.
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On the other hand, it can be more cost effective to renovate your existing home if you intend to make some minor upgrades. Furthermore, if you’re already living in the location of your dreams and intend to live there long term, staying put and making some changes to your current home can be more sensible than buying a new property.
As well as that, if the value of property in your area is growing, it may be more worthwhile to renovate now as a capital growth occurs for a future investment. However with renovations, you need to consider your costs carefully to ensure you do not overcapitalise.
This is the golden rule of renovating. Overcapitalisation occurs when the value of the property does not increase by the same amount you spent on renovating the property. For example if your property was worth $800,000 and you spend $150,000 on renovations but find that when you attempt to sell your home, the value of the property only increased by $100,000, you have now lost $50,000 due to renovations.
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Be sure to ask an agent for a figure regarding how much your home is worth and let this be a starting point to dictate how much you should be spending on renovations. Your local property manager or real estate agent should also be able to tell you which features add value and which ones don’t.
It’s a good idea to find out the average sale prices of other properties on your street and suburb - especially houses with comparable features to yours - and use this to determine whether it is worth making renovations to add value to your property. By establishing a ballpark figure, you can place a limit on the amount you spend on renovations to avoid overcapitalising.
Rather than approximating figures of how much each move will cost you, make sure you get specific quotes from people you plan to hire, or costs you know you will need to pay, to decide which is the least costly endeavour, particularly in the case of renovations. While averages can be good, it is easy to overcapitalise when you are working on approximations.
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Whether you decide to buy a new property or renovate your existing property, the choice should be made after some careful consideration of costs as well as your personal situation.
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