Hinternoosa Rentals
Overcapitalisation: Thinking About Selling or Improving Your Property?
Overcapitalisation is when you invest money into property improvements beyond the resale value. When deciding to carry out improvements on a property, it is important to know and understand the key areas to focus on and where to invest your money to maximise your return on investment (ROI). If the property is your principal residence, and you do not intend on selling for many years, then the sky is the limit when it comes to improving, decorating, and designing the home to your personal tastes and likes. However, if it is an investment property or you are getting your home ready to sell, you must make wise decisions. If you overcapitalise on a property, it can lead to financial loss and unnecessary debt.
Imagine you have a modest 3-bedroom suburban property that you want to sell. Like all investors, your focus is to achieve the best possible price, so you decide to upgrade the kitchen and bathrooms with high-end appliances and Caesarstone benchtops, replace the carpets and window coverings with expensive options, paint the walls, install a new air conditioner unit, and invest in extensive landscaping, believing that it will increase your sale price.
Overcapitalising is a common pitfall when renovating a property. Albeit you can avoid this if you conduct research, focus on a budget rather than what you would want in a property, understand the concept of ROI, and remove any emotions attached to the property.
Understand the pricing disparity in your area
Pricing disparity is the range of sale prices within a suburb.
For example, if you plan on carrying out $100,000 worth of renovations to a home valued at $700,000, it should make it at least an $800,000 property. If properties in your suburb sell for $550,000 – $700,000, it might not make sense to go over that $700,000 price range.However, property prices may fluctuate depending on several factors, such as what the $800,000 renovated property offers buyers.
Visit open homes in your area
By visiting open homes, you can note additions to the property, updates, quality of fittings, quality of craftsmanship, and the amount of space. Considering these aspects and looking at property values, including the eventual sale price, will help you determine a home’s value and inclusions.
Find out what features attract more buyers or renters
Start talking to real estate agents and find out what is selling and what buyers (or renters) are looking for. You may not be planning on selling your home soon, but it’s always good to know buyer preferences to make smart choices when it is time to sell.
Budget wisely
Research the costs of your renovations, make a budget and stick to it as closely as possible. Make sure you factor in any surprise costs that may escalate, such as underlying unknown damage to the property.
We are here to support, assist, and guide you if you are considering selling. Feel welcome to contact our agency for an obligation free walk-through inspection of your property, where we will provide feedback on renovations and works needed to achieve the best possible sale outcome.