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Renovation can be a sound strategy for smart investors

Renovation can increase the value of your property investments

By: Nesa Rahmat/

Image credit: Grant McLean/Flickr

Getting ahead in real estate investments is not just about buying properties – the most strategic move for you may be to improve the value of a property you already own, even your home. If you are happy where you are, renovation can be a sound financial strategy. When you renovate your own home, you win twice – once when you enjoy the benefits of a better home, and once again when you sell the home.

When it comes to resale value, however, not all renovations are created equal.

Let’s look at an example. Suppose you live in a landed property and fancy a hot tub on your back deck, and decide to invest $10,000 or so. Will that add $10,000 to the value of your home? Likely not. The truth is, not everybody wants a hot tub. In fact, somebody bidding on your home might not want to bother with the maintenance, and may be inclined to get rid of it. Their bid, therefore, will not take your investment into account – it might even be seen as a negative.

The lesson here is that when you’re prioritising your renovation, make sure you consider which ones add the most value to your home.

Here are some guidelines for renovations:

  • Chose improvements that are most popular with prospective buyers. Kitchens and bathrooms are at the top of the hit list according to statistics gathered by several agencies.
  • Keep your home in top shape. Homes that are not looked after deteriorate rapidly in value. For private landed properties, a leaky roof, for example, can cause damage to your hardwood floors. Siding that is in bad shape can lead to animals and other pests getting into your attic and causing further damage.
  • When the time comes to sell, put your maintenance operation into high gear. Painting the exterior, repairing the roof, and re-doing the gutters will ensure that buyers get a positive impression.
  • Apartments purchased as investments benefit the most from sensible renovations: Renovations make it possible to derive rental income are generally big plusses for potential buyers.
  • Avoid amateur renovation jobs. The “do it yourself” renovation market may be all the rage in right now, but if you put an addition on yourself, and the roof leaks, a prospective buyer won’t be impressed. If you can’t do a professional job yourself, hire somebody who can.
  • Invest in energy efficiency. With rising energy prices, you can be sure that the payoff from investments in insulation will give a return that keeps rising. If you improve your energy efficiency.

Whatever you do, do not use personal loans before searching for renovation loans. 

In embarking in your renovations for that dream lifestyle and a nicer home, a good rule of thumb is not to leave too much of your own lifestyle in the house. The biggest mistake people make is do renovations that are very customised to their own wants and needs.

Personal loans are much more expensive than renovation loans. The interest rate is around six to nine per cent per annum. On the other hand, renovation loans can have interest rates of five per cent per annum or lower. You should always use the renovation loan first, and use personal loans only after it runs out.

Renovation loans are capped at $30,000, or six times your monthly income (whichever is lower). This is usually enough to furnish a five-room flat or smaller, if you don’t get overly lavish. To find the cheapest renovation loans, speak to some expert loan consultants. You should also source for good renovation contractors.

ALWAYS GET A FEW QUOTATIONS TO COMPARE

Even if it is a referral from a family or friend, always double check and request to see other renovation works or ongoing projects of the contractor. And never ever go with the first or only quotation you get for your renovation works. Always get at least 3 quotations from different renovation contractors to check if you are getting the best deal.

The saying, “if it is too good to be true, it probably is” is befitting especially for dishonest renovation schemes by unscrupulous contractors.

Some contractors may not always include items like cost of electrical works, bathroom accessories, curtains, air-conditioners, window-grilles, lighting fixtures, haulage, painting, cement screeding and disposal in the renovation quotation. Some contractors assume that these costs should be covered separately. Others may deliberately leave these items out to make the quotation look cheaper.

Always ask the renovation contractor to make the quotation as comprehensive as possible so that you are comparing ‘apples-to-apples’ with the different quotations you have, and so that you can award the renovation works to the right contractor.

NEVER PAY THE FULL AMOUNT UPFRONT

Case executive director Loy York Jiun, for example, advocates that consumers should “always negotiate for progressive payment as the work commences, instead of paying in full up front”. A reputable renovation contractor will always provide options for progressive payments for homeowners. If anyone asks you for upfront full payment, even before the commencement of any works and regardless of the size of the works, it should make you very suspicious. It is better that you err on the side of caution with such contractors, no matter how attractive their proposal looks to you.

The following is a good guide for progressive payment to your renovation contractor:

10% – Deposit on signing of renovation contract;
40% – 1st balance payment upon commencement of renovation works;
40% – 2nd balance payment upon completion of 70% of renovation works; and
10% – Last payment should be issued 2 weeks after satisfactory completion of ALL works.

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