The decision to renovate your home or buy one complete with what you want in it is a bone of contention for many homeowners. Selling your home and buying another costs money, renovating an existing home also costs money.
As a rule of thumb, if you like where you live and your renovation is going to cost $20,000 or less then stay where you are and renovate. I say this as to sell and buy a house (in the $400,000 range) will set you back about $20,000 in costs. To give you an idea, I have run the numbers below on a property with a sell/buy changeover value of $400,000 in Queensland:
- $ 11,500 in Real estate sales commission;
- $ 900 in legal costs.
- $ 5,250 transfer duty;
- $ 1,300 in legal cost;
- $ 700 in lending & government charges (approximately);
- $ 500 building and pest.
WARNING: The cost calculated above are true only for the example given and may not include all expenses or costs. Different conditions might result in different costs.
Selling and buying also comes with additional costs not mentioned above. You have the cost (and hassle) of cleaning and moving and the time cost and frustration associated with that.
Renovating also comes with hassles and inconvenience. You could be without a kitchen for a while, or have huge holes in walls where windows have been removed.
Funding renovations can also put additional pressure on your budget.
Four key areas that add value
If you decide to renovate, there are four key areas that add value. These are the kitchen, bathroom, outdoor area and car accommodation. Being in the midst of a renovation myself, I have researched the average renovation prices for these key areas. The cost estimates in this article are based on my research and the average costs for the Cairns location in which I live. Be aware that prices will fluctuate depending on the city and suburb you live in.
If you are a fan of the show The Block, you will know kitchens sell houses. According to realestate.com.au, the average renovation cost you should be spending on a kitchen is between $12,000 and $16,000. This does not include the cost of new appliances. You can outlay a further $4,000 to $8,000 for these.
The average bathroom space in Australia is six square metres. Look to spend around $9,000 - $12,000 as the bathroom is a highly trafficked space and needs to appeal to a wide variety of investors.
A well designed deck adds appeal and will improve the standard of living for the homeowners. A 25 square metre deck will set you back between $6,000 and $10,000 depending on material used and its location.
Carport with garage door
A quality double carport with concrete driveway and automatic door can cost between $10,000 to $24,000. This addition can completely change the kerbside outlook of your property and have a surprising impact on its appearance.
There are always other costs that you do not account for. Again, as a rule of thumb, keep aside an additional 10% of your renovation costs to cover any final hurdle (electrician, tiler, plumber, plasterer, painter or council fees) as there is nothing worse than living with an incomplete renovation!
Funding your decision
No matter if you buy or renovate, it will cost you money. If you decide to renovate, you need to consider your options. There are four types of loans that could be used:
A line of credit loan, a construction loan, increasing your existing home loan or a renovation loan.
A survey by Finder.com.au found only 27 per cent of homeowners think refinancing their home loan to renovate is a feasible option to raise funds for the next big step. (source MFAA)
In a 2015 Finder.com.au survey, 42 per cent of homeowners said they were worried that, by unlocking home equity, they would not be able to afford the larger repayments on their mortgage. However, every household and property is different, as are the funds needed to achieve a renovation. (Source MFAA)
You need to talk to a finance expert
Engage a mortgage broker. Preferably one who has personally experienced the renovation process. Not only can they help you assess your current financial position, run through your plans and future payments, and decide if you can afford to take on more debt. They can give you valuable insight into what to expect when renovating.