You’ve found or live in the perfect location – it’s close to work, near shops, transport and schools and there’s a great park around the corner.
Plus property values have shown good consistent growth over the years.
The problem is the house itself.
It could be a bit of dump – old, rundown and in need of some serious modernising.
Alternatively, you may have outgrown it and it just doesn’t meet your personal and family needs and more.
So what do you do when you like the neighbourhood but not the house?
Do you renovate or tear it down and start from scratch?
These are the questions 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.
To help answer these questions, let’s look at some of the key factors to consider when deciding between demolition and development:
1. Compare property values in the street and neighbourhood
For starters you should check for price differentials between your property and comparable nearby ones.
If there are major differences (for instance, where your property is valued or priced less than everyone else’s) you need to find out the reasons why.
It could be the other properties have a better view, location, or garden. In many cases it’s the house itself that is the differentiating factor.
It could be bigger, newer, have a better floor plan, be well decorated, be fitted with superior furnishings and fixtures and have all the mod-cons or better reflect its heritage and era.
Whatever the reason you need to compare and contrast them with your own so you can work out if it is worth the time, effort and money to develop and how much you may need to spend to add value and deliver what you’re looking for, but not overcapitalise.
2. Be clear about what you want
An important step is to clearly and comprehensively articulate what sort of property you want.
For example, you may desire something which is modern and contemporary, or something which is older and has all its original period features.
You then need to consider other things like size, internal and external layout, aspect, position and whether it will be a single or double storey dwelling – the list goes on.
This should then be compared with your current property so you can make an assessment about whether it can be transformed to meet your needs, or whether a brand new one has to be built in its place.
You should also be careful that what you’re proposing is in character with the neighbourhood and meets the planning regulations.
So discussions with the local council and a good architect would be a sensible move.
3. Do your sums
The next step is to get some comparative costs.
This is the financial side of the equation where you work out how much you’ll have to spend on each alternative and whether you can afford it.
Not surprisingly most people believe rebuilds to be the more expensive option since there’ll be demolition costs and because you’re starting from scratch.
However, with the cost per square metre of building new homes reducing in price due to economies of scale and advancements in building technologies (like prefabrication), new build costs aren’t always as high as you may anticipate.
Major renovations on the other hand, can be more expensive than expected, often costing many hundreds of thousands of dollars, especially if you’re building up as well as out.
A lot depends on what you want done, how easy it will be to add to or change the existing property and the extent of 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.
This is a big chunk of your renovation budget.
For these reasons alone it’s important to get a detailed costing from your builder and/or architect when doing your sums to ensure you can adequately compare and contrast not only how much you’ll have to pay, but what sort of bang you’ll get for your buck.
4. Consider living arrangements and timelines
While your property is being developed you’ll have to work out where you’re going to live.
With a renovation you may be able to stay at the property although for major works this is unlikely because of health and safety issues.
A rebuild will require alternate accommodation to be found.
Aligned with this is how long it will take before you can move in.
The size and scope of the project will determine timelines and so you should include things like inconvenience factors and additional expenses (like rent or transport) into your overall costing when comparing alternatives.
5. Keep your lender informed
Finally, whichever way you go you must make sure your lender is on board before you start the 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.
Make your lender your partner as you renovate or rebuild your property.
They could come up with a loan product that better suit your needs, or suggestions on how to save on interest costs.
There shouldn’t be any problems if you can show you’re adding value – just keep them in the loop.