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Buy a new property or renovate - what’s cheaper?

If your property is outdated and you're confronted with the dilemma of buying a new property versus simply staying put and renovating your established home, deciding which option is more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.

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What are the costs involved in buying a new house?

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:

  • Stamp duty - You will be required to pay stamp duty again with any transfer of title and this is by far the most expensive cost to think about. Try our stamp duty calculator here.
  • Refinancing costs - Depending on how flexible your loan is, changing your loan terms will require additional costs.
  • Home loan application fees - These are fees charged by a lender to apply or establish a loan. This can sometimes be waived, ask your Home Loan Specialist to help negotiate this for you.
  • Legal fees - Similar to the the first time you purchased a property, legal and conveyancer fees are an unavoidable cost to buying a new home.
  • Real estate agent fees - Most agents will charge you around 2% in commission fees to sell your home.
  • Building inspection costs - It’s always important to arrange building and pest inspections to be assured of the structural integrity of a home and this will apply to your new home too.
  • Costs of moving - Packing up your life and moving house will cost money, whether this is due to hiring movers or simply making the extra purchases you’ll need in your new home.

How much does all of this add up to? Read our guide to the hidden costs of buying a home.

What are the costs involved in renovating?

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:

  • Building materials and labour - The cost of this will vary depending on the size of your renovations and you will need to factor in the cost of hiring builders and contractors.
  • Costs of hiring various professionals - Depending on your needs, this could include a project manager, designer, architect and structural engineer. Read more about the professionals you might need to hire here.
  • Council fees - Some renovations require council approval before commencement and it’s always a good idea to check with your local council whether you’ll need to pay any fees before doing so. Generally the size of this fee will depend on the overall cost of your renovation.
  • Rental fees - If you need to move out of your home during the renovation period, you’ll need to consider the extra costs of rent on top of everything else.
  • Emotional costs - Renovation projects can come with their own set of emotional costs. If you’re planning on living in your home while you renovate expect that you may be living in a construction site for a time.

Thinking of building a new home? Read our guide to construction loans here.

When should I sell up and buy?

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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When should I stay put and renovate?

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.

Avoid overcapitalising!

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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How do I avoid overcapitalisation?

#1 Get your property professionally valued

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.

#2 Check value of properties nearby

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.

#3 Have a clear budget

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.

Got a question about financing a renovation or move?

We're here to help. Chat to an expert at a time that suits you. Choose a time to speak to a Home Loan Specialist.

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