You’ve found the perfect location, and property values have shown good consistent growth over the years, but the property is old, rundown and in need of some serious modernising.
So you ask yourself the question – is it better to renovate or detonate?
This is the question facing more and more homeowners and home buyers, especially when they like where they live and don’t want to move, or they’re thinking about buying but recognise further investment in the property will be required.
The below points help answer the question, and look at some of the key factors to consider when deciding between demolition and development.
1. Determine your property’s value: Compare property values in the street and neighbourhood
As a starting point, you should determine your property’s value.
Check for price differentials between your property and comparable nearby ones.
If your property is valued or priced less than everyone else’s, you need to find out the reasons why.
Some of the reasons why other properties may have a higher value are that they have a better view, location, or garden.
However, in many cases, it is the house itself that is the differentiating factor.
Bigger and newer homes could have a higher value.
The other houses may have better floor plans, be well decorated, be fitted with superior furnishings and fixtures, have all the mod-cons or better reflect its heritage and era.
Whatever the reason is, compare and contrast these factors against your own property so you can work out if improving your property’s value is worth the time, effort and money it may cost to add value and deliver what you’re looking for, while remembering to not overcapitalise.
2. Know what you want
Be clear about what you want.
This is an important step where you need to clearly and comprehensively articulate the sort of property you want.
For example, you may desire something that is older with all of its original features, or you may like a modern and contemporary home.
Also considering things such as size, layout (both internal and external), aspect, position, whether you want a single or double storey dwelling is important.
Once you know what you want, you can compare this to your current property and assess whether it can be transformed to meet your needs, or whether you are better off building a brand new dwelling in its place.
Be mindful that the property you have proposed is in character with the neighbourhood and meets the planning regulations. Contacting your local council and a good architect would be a good move.
3. Do the math
Your next step is the financial side of the equation.
You need to work out how much you’ll have to spend on each alternative and whether you can afford it.
Unsurprisingly, most people believe rebuilds to be the more expensive option since there’ll be demolition costs and because you’re starting from scratch.
However, new build costs aren’t always as high as you may anticipate – the cost per square metre of building new homes is reducing in price due to economies of scale and advancements in building technologies (like prefabrication).
On the other hand, major renovations often cost many hundreds of thousands of dollars, especially if you’re building up as well as out, which can end up being more expensive than expected.
A lot depends on what you want done and how easy it will be to add to or change the existing property.
Also, don’t forget to factor in unforeseen problems or issues arising, like whether major repair or restructure work is needed to support the renovation.
In fact, fixing serious renovation problems can amount to 25%+ of the total renovation costs, which is a big chunk of your renovation budget.
For the above reasons alone, it is important to get detailed costing from your builder and/or architect when doing your sums to ensure you can adequately compare and contrast how much you’ll have to pay and what sort of bang you’ll get for your buck.
4. Living arrangements and timelines – Consider the added costs
While your property is being developed, you’ll have to work out where you’re going to live.
If you are renovating, you may be able to stay at the property for the most part, but for major works this is unlikely because of health and safety issues.
If you opt to rebuilt, you will need to find alternate accommodation.
With this, you need to consider how long it will take before you can move in.
The size and scope of the project will determine timelines, so you should include things like inconvenience factors and additional expenses such as rent and/or transport into your overall costing when comparing alternatives.
5. Inform your lender
Lastly, whether you decide to renovate or rebuild, you need to make sure that your lender is on board before you start your project.
You must inform them from the outset what you’re planning to do, especially if this is going to happen early on.
Your lender won’t be too happy if you tear down a major part of their security without their knowledge – that might represent a breach of contract and the loan could be called up.
Your lender should be your partner as you renovate or rebuild your property, and they could come up with a loan product that better suit your needs or provide suggestions on how you can save on interest costs.
You shouldn’t face any problems if you can show that you’re adding value to your property – just make sure you keep them in the loop.