If you’ve ever carried out a property renovation or are in the process of looking into one, you’ll know that there are a lot of facts and figures out there on how much you should have for your renovation budget. However, a lot of this information is conflicting and can leave you feeling very confused, especially if you’re a first time renovator.
Some experts recommend spending five per cent of your home’s total value while others go up to twenty per cent, and sometimes there is a very specific price range suggested for rooms and whole house renovations.
But there is no magic number. It’s just like saying everyone in Australia should budget the same amount for groceries each week; there’s no set figure that will work for everyone, and a lot of individual factors you need to consider.
The 5-10 per cent guide
The general rule of thumb is to spend no more than five to ten per cent of the total value of the property on renovations, to ensure you don’t spend more than what you can sell it for one day (overcapitalise). This is a good guide, but there are other factors to consider, as outlined below. You’ll also need to consider potential future renovations and how much you might want to spend throughout your ownership.
Cosmetic or structural renovation
Costs will vary widely depending on whether you’re undertaking a full structural renovation, minor cosmetic updates, or both. A structural renovation, as its name suggests, involves updating or rearranging elements of the structure of the house, such as moving walls, updating the property’s floor plan, adding a new roof or an extra storey, and rearranging plumbing and wiring in the process.
Cosmetic improvements include things like painting and updating light fittings, window furnishings, flooring and basic hardware such as door handles and towel racks. Cosmetic updates are generally quicker and cheaper than structural renovations and can often add more bang for your buck if you have limited funds.
Single room versus full house renovation
Are you focusing on a certain room or renovating the whole house? Obviously, a full house renovation will cost more than a room or two, but if you are only doing a certain room, your budget will also vary based on which room in the house it is.
Work out the relative value of each room to the property and allocate costs in proportion. For instance, you’d generally need to budget more for a kitchen than you would a study or bedroom. The same thinking goes for a full house renovation – divide your total budget between each room being renovated and allocate costs according to their value in the home.
If ideally you would like to renovate your whole house but only have the budget for a room or two, consider high traffic areas such as the kitchen and bathroom. This should get you the most returns when it comes time to sell.
The size of the area to be renovated
The cost of renovating a twelve square metre kitchen is not going to be the same it would for six square metre kitchen. The size of the area will determine the raw materials needed. Whether it’s cabinetry or carpet, these materials are often charged by square metre (or litres in the case of paint), and this will affect your renovation budget. Knowing the size of the room and specific measurements will help you when it comes time to researching costs and obtaining quotes.
Are you an investor renovating for profit, or a homeowner renovating for comfort and lifestyle purposes? This will change your renovating mindset, style and budget. An investor who is looking to renovate simply to get more rent every month can do this by making updates such as a new bench top, oven, dishwasher, window dressings or carpets, as opposed to a full renovation. These simple things can make a huge difference, and often the owner can recoup these costs over the course of a few years from their rental income.
It’s a different situation if it’s your home and you’re renovating to suit your personal tastes, in which case you might be willing to stretch your renovation budget to get exactly what you’re after.
How long you intend to have the property for
How long you plan to own the property for in the future will determine how much you should be spending on renovations. If you don’t plan to hang on to the property for longer than five to ten years, you shouldn’t renovate beyond what you can make back in that time. There’s no point having a large renovation budget as an investor if you can’t recoup the costs and then make a profit from it. Instead, focus on smaller changes that will be paid back quickly in increased weekly rent.
If it’s your place of residence and you’re renovating to get a profit at sale in the near future, be mindful of the actual value any renovations will add to your home so you don’t overcapitalise. But if you’re there for the long haul and want to renovate for your personal preference, you certainly have more freedom with your budget.
When setting your renovation budget you should consider what’s happening in your neighbourhood and the market value of properties similar to yours. Look at how your home compares to similar properties locally – what work will you need to complete to get it up to standard and, on the other hand, what might be too much for your neighbourhood that any added value will be wasted? Both of these will matter when it comes time to selling one day. For instance, buyers in a low socio-economic area may not want to pay extra for luxury finishes or a pool, and thus you may overcapitalise.
Your own budget
Your own budget and what you can actually afford should be one of the biggest considerations. There’s no point being persuaded into spending $15,000 on a kitchen renovation if you initially only had an $8,000 budget. In such a situation, you could choose to focus on cosmetic updates rather than full structural renovation. Be realistic about what you can do well with your budget and don’t try to stretch it too far, or risk ending up with a half-finished or poor quality job.
Get expert help
Get the advice of a Real Estate Agent or a professional Property Valuer to help you direct your funds where they’re most needed and to avoid overcapitalising. For investors, your Property Manager should be able to suggest a few updates that would make a difference in terms of weekly rental returns, even if it’s something as simple as new flooring. In any case, a Property Valuer can tell you how much your property will be worth once renovations are complete and what value it will add to your home – this is a great tool to see if your planned renovation budget will deliver real value.
Professional renovation or DIY
Costs will be cheaper if you have the skills (and the patience!) to do some of the work yourself. But if you don’t have the skills, leave it to the pros – your attempts to save money will result in unnecessary expense if you get it wrong, and it could lower the value of the home if it’s a substandard job.
If you do bring the professionals in, make sure you get at least three comparable quotes to ensure you’re getting a fair deal. Just be careful of quotes that are remarkably cheaper than others– if it seems too good to be true, it probably is.
Allow for mistakes
Once you’ve considered all these factors and set your renovation budget, allow a further ten to twenty per cent to allow for mistakes and contingencies. Mistakes are bound to happen, particularly if it’s your first time renovating.
Once you have your budget in place, ensure you monitor costs throughout the renovation process to ensure you keep on track as much as possible.