Renovating for profit: 5 ways to add value

NICOLA FIELD
Not all renovations are created equal. Canstar picked the brains of renovation expert Cherie Barber to find out the five best renovations for adding value to a home and three less likely to produce a good result.

With the pandemic scuppering big-ticket spending like overseas travel, home owners are lavishing plenty of cash on home improvements. The latest numbers from the Australian Bureau of Statistics show spending on renovations has skyrocketed – hitting record highs of around $1 billion per month since February 2021.

A well-planned, well-executed renovation can add value to a home but not all renovations hit the mark. Cherie Barber, founder of Renovating for Profit, nominated the five renos most likely to add value – and the projects to think twice about. Let’s take a look.

 

A kitchen makeover is one of the best ways to add value. Image source: LEKSTOCK 3D/Shutterstock.com

5 best renovations to add value

1. A kitchen makeover

Kitchens are longer a place just to store and prepare food. Ms Barber said kitchens are where we tend to spend most of our time, and that puts kitchens in the top spot for renovations that add value.

According to Ms Barber, a great kitchen makeover doesn’t have to involve designer brands. “Property valuers don’t look at the brand, or care if a kitchen is Ikea or Kaboodle,” she said. “However, it’s important that the kitchen suits the house – consistent design adds value. It must also be practical and functional, and the kitchen needs to look good.”

When it comes to setting a budget, the 2020 Archicentre Cost Guide shows a kitchen makeover can cost up to $43,000 but the sky really is the limit. That makes it essential to set a firm budget. “A general rule of thumb is to spend around 3% of your home’s current market value on the kitchen,” Ms Barber told Canstar.

On that basis, a $1 million home can demand a $30,000 kitchen budget including materials, appliances and labour. Spend something like $75,000 on a home worth $450,000 and you could be overcapitalising in a big way, Ms Barber cautioned.

Kitchen makeovers might not come cheap but the pay-off can be impressive. “Ideally, home owners should be looking to double their investment as a minimum,” noted Ms Barber. “So if you spend $30,000 on a kitchen, you’d want to see a $60,000 uplift in the property’s value.”

2. Renovate the bathroom

Despite often being the smallest room in the house, a bathroom renovation can soak up plenty of cash. Here too Ms Barber recommended a budget of 2%-3% of the home’s current value.

“Typical bathrooms are about 9-12 square metres in size, with the average bathroom renovation hovering around the $20,000 mark for materials and labour. If your home is a higher priced property, it’s okay to spend more,” she added. Again, you should be looking for a $2 rise in the property’s value for every $1 spent on renovations.

Two must-have features for modern bathrooms are a bath and storage. “Baths can take up plenty of room but they hold lots of appeal especially for families,” said Ms Barber. “Storage can add big value, and it can be achieved through a bigger vanity as well as concealed storage in walls.”

One area where it’s easy to go overboard is expensive feature tiles. They might look great but they don’t always pull their weight in terms of value-add. It’s also possible to overcapitalise on fixtures – a stone bath, for example, may look amazing, but it can also set you back $10,000.

“That’s the beauty of setting a maximum budget of 3% of your property’s value,” said Ms Barber. “It stops you making silly spending decisions when your property may not warrant that level of finishes.”

3. Create an extra bedroom from existing space

Ms Barber pointed out that property prices are often shaped by the number of bedrooms, and creating an extra bedroom of decent size can be a real value-add. We’re not talking about a full-blown extension. It’s more about clever use of existing space in the home. Ms Barber believes adding a bedroom can be done cost-effectively by rejigging the internal layout and installing new walls.

“Oversized lounge rooms that can be reduced slightly in size, formal dining rooms that never get used, a large laundry, and roof space all have the potential to create an extra bedroom,” she explained. “The key is to only do this when space genuinely allows, and it doesn’t negatively impact on the quality of the other rooms in your home.”

To be sure you get the balance right, Ms Barber said it helps to know what’s expected of homes in your area. “In Sydney’s upper north shore for instance, it’s generally expected that homes will have a formal dining room, even though it’s rarely used. In other suburbs it’s more common for properties to have a combined lounge, dining, kitchen area,” she explained.

4. Add a garage

A garage can be a big value booster – and they offer more than a secure spot for the family car. “People are collecting more stuff, with garages often doubling up as informal storage sheds,” said Ms Barber. “They can also be used as a hobby space or even a make-shift home office throughout the COVID-19 period.”

A carport may be kinder on your budget and, according to Ms Barber, they’re definitely better than nothing. But in terms of value-add, she believes carports are the poor cousin to a garage. “If you have room to the side or front of the home and your budget allows, it’s worth adding a garage especially in an area where garages are prevalent.”

5. Spruce up the façade

A home’s façade is especially important if you’re planning to sell the property or attract quality tenants. “First impressions often set an expectation as to the rest of a home,” Ms Barber noted.

A whole variety of improvements can perk up a façade. According to Ms Barber, a new colour scheme, or cement or acrylic rendering can instantly modernise an ugly brick façade (never render a heritage brick!).

Giving paths and driveways a clean with a high-pressure water hose can remove built-up dirt and grime to freshen up a home. Replacing older accessories like a letterbox, porch lights, and even street numbers are relatively easy steps that can all contribute positively to the façade.

Installing a front fence can add value as it ticks the box for security and gives children a safe play area. “Even well-maintained plants and landscaping with mowed green grass adds value,” said Ms Barber. “Let’s be clear, weeds are not feature plants and don’t add value!”

It all sounds simple but external renovations can demand a solid spend. Ms Barber pointed out that rendering alone can cost around $15,000-20,000 for a typical suburban house though the final bill can go a lot higher if you have a two-storey home.

In terms of your improvements budget, Ms Barber advised: “Aim to spend no more than 10% of your property value on external areas, and concentrate the bulk of this investment on the front façade to give your property the best chance of an uplift in value.”

 

Home theatre
A home theatre is less likely to add value to your home. Image source: P11irom/Shutterstock.com

Renovations less likely to add value

Not all renovations are created equal. Some projects can actually turn buyers off, meaning you could struggle to get your money back – let alone profit from a project when it comes time to sell.

1. Swimming pools

Demand for pools has leapt ahead during the pandemic as we spend more time at home. But before taking the plunge to add a shimmering patch of blue to the backyard, consider whether it will pull its weight for value-add.

“It’s questionable as to whether a pool adds value,” Ms Barber said. “In prestige homes or very hot locations, they can definitely add value. But for homes located near a beach or public pools, the uptick in value is less certain.”

She noted that for investors there are serious issues around maintenance and pool safety. “If the pool fence is not maintained in a safe condition and someone happens to drown, you might be facing a lawsuit, so pools are more attractive to owner-occupiers.”

According to Ms Barber, a swim spa can be a better choice than a pool as they’re more affordable and can be used year-round though safety standards still apply.

According to Spa World $20,000 to $30,000 should secure a good quality swim spa, compared to $40,000 to $50,000 for an average (10m x 4.5m) in-ground pool. Be warned, though, using the heat pump to take a dip in a swim spa over winter can add an extra $200 to your monthly power bill.

2. Home theatres

Home theatres can come with a blockbuster price tag, and according to Ms Barber they don’t always add value. With so many of us subscribing to streaming services, we may be more likely to be watching different movies from various bolt holes around the home rather than gathering around a single screen.

If you do decide to transform a room into a home cinema, Ms Barber advised: “Be careful not to go too crazy with the latest technology, which can get rather expensive, very quickly.”

3. Smart home technology

The latest Telsyte Australian IoT@Home Market Study 2020 shows the smart home market is growing as Australians embrace devices and services that can make homes more convenient, secure and energy-efficient.

But instead of reams of cables hidden behind walls as used to be the case with smart home technology, we’re turning to WiFi-driven devices – anything from video doorbells and locks to energy sensors.

Will smart home technology add value to a property? The jury is out on this one. “The technology can quickly become outdated, and it can be frustrating from a user perspective. It’s something I’d really only recommend for prestige properties,” Ms Barber noted.

The key take out

Before committing to a home improvement project, Ms Barber recommended looking at local property values for evidence of higher resale values following renovations. This can help guide you on how much to spend. “For lower value properties in regional areas, you need to be highly disciplined in what you spend to avoid overcapitalising. Otherwise, it can take years to see a return on your investment,” she said.

If the property is your forever home, Ms Barber said you can probably be a little more relaxed around these guidelines. Even so, you may decide to pull stumps and move at some point in the future. That’s when an overpriced, poorly planned or quirky renovation can leave you out of pocket – and short on potential buyers.

Cover image source: Rawpixel.com/Shutterstock.com


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This content was reviewed by Editorial Campaigns Manager Maria Bekiaris as part of our fact-checking process.


Nicola is a personal finance writer with nearly two decades of industry experience. A former chartered accountant, who holds a Bachelor of Commerce and a Master of Education degree, Nicola has contributed to several popular magazines including the Australian Women’s Weekly, Money and Real Living.

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