Adding Net Value

adding value with rennovations

One of the big questions when it comes to selling an older home is should we renovate or leave it to the buyer?

When you renovate your home (for profit rather than pleasure) you need to look at where you can make a net gain to the value of your home – that is, where you can get that money invested back (at the very least) or ideally make a profit on the other side. In simple terms, where can I spend $5,000 and make $10,000 at the other end?

In determining this net gain, its rarely as simple as 1 + 1 = 2 as quite often, you are removing something to put something in and in doing so, need to account for that swap. For example, let’s look at a new kitchen – one of those big-ticket renovations which are quite common in updating a home.

First example – 20-year-old kitchen, benchtops scuffed and faded, kick panels swollen, timber handles on aged cabinetry and appliances working but scraping past.

 Second example - maybe a 10-year-old kitchen, decent (but not soft-close) cabinetry, stainless steel appliances, dishwasher. Looks good from a couple of metres but starts to show a bit of age upfront.

In both cases, an owner spends $25,000 (not unheard of) and rips out the old kitchen for a full replacement, which now has stone benchtops, all new appliances, island bench and soft close, 2 pac cabinetry. What’s the result?

All other things being equal, our first example has removed what would have been a major objection and probably not lost much (if anything) in residual value in gutting the old kitchen, so you can look at that money spent as positive overall, ideally not only recovering its own cost but more on top.

In our second example however, while the owner now has the same new kitchen, their margin of improvement isn’t going to be as great, being realistically the difference in value between a “good” and “great” kitchen, rather than the gulf between “great” and “falling apart”. Their new kitchen IS better, but its only $10,000 better than the old kitchen, and they’ve spent $25,000 to get there…

While an emotional renovation for a long-term home can be worthwhile for your own use, be careful not to get caught up in it when focusing on profit. Compare your end result to other homes with a similar finish to make sure you aren’t overdoing it, and talk to your friendly local agent first! With experience seeing hundreds of homes, they might just save you time and money before you spend it.