New Zealanders’ love a good before and after renovation story – you just have to look at the number of home improvement shows on television to qualify this. But what is the true ‘cost’ of a home renovation, and are those costs always recoverable?
After five years of checking real estate listings every day in search of a “pretty standard” list of requirements for a home in Wellington, property owner James Gladstone finally found a home that checked most boxes.
The problem was – much of the 1965 modernist design was in original condition that required a serious renovation to make it workable for a modern family of four.
“We were lucky: there were no major structural changes to be made, it just needed a new kitchen, insulation, asbestos removal, re-wiring, new carpet, underfloor heating, re-plastering, painting, window treatments, and roof work…just the standard improvements!”
Six months later the Gladstone’s had created their version of a dream home – but had the investment been worth it?
“Wellington has experienced the sharpest and most substantial growth we have seen in the last 20 years. It has moved very quickly and it is now showing an increase of 12.4% for the last 12 months … and it still is going up. There is a shortage of stock and houses on the market are selling in record time”.
Max suggests there are two ways to look at this. The first is to assess the added value versus the cost price, that is, what was paid for the property plus the cost of the renovation compared to what it is worth now; and the second is to consider what is the alternative to buy something similar in its finished state?
“However, that doesn’t give you the whole picture as the market has moved in significantly in the last 6 months.
What this means for the Gladstones is that they have substantially more equity in their property, which would enable them to borrow more against it and re-invest in the property market.
“If they wanted a bigger or better property, then a rising market would penalise them twice. Expensive houses are increasing more percentage wise and dollar wise, so if they wanted to trade up it would cost more. Whilst you have more equity, you will pay more and you will borrow more. If you downgrade of course the opposite is true.”
Another often overlooked aspect of buying and renovating a home is the cost of moving. If you wanted a bigger property ( in this case the Gladstone’s wanted to create a guest bedroom and ensuite) the cost of buying another home with those features is likely to be significantly more than the added value it would bring to their current property.
Against that cost is the cost of moving, real estate fees, legal fees and valuations etc. – this could amount to around $35K or more, so in this case doing the extension is a viable option.
“In terms of re-sale, when people look to buy a property there are checklists – whether they know it or not. A modern kitchen and bathroom, indoor/outdoor flow, security, double garage internal access is all high priorities for buyers. In the price range of this property, two living spaces are good to have as well. When renovating a property these elements have to be kept in balance. If upgrading the kitchen – it must be in balance with the standard of the property. When talking about values if you are buying a million dollar house you wouldn’t want a $10,000 kitchen. Similarly you would expect two living areas, and an ensuite.”
“Creating the home you want when you can’t find the perfect home is still a good option given added value also applies to renovation costs. It is a good time to sell. Properties that don’t have the ideal configuration or location and have been difficult to sell in the past are now showing their full value. If you want to make a move, now is a good time to do it.”