RENOVATE OR BUY A NEW HOME : WHICH IS BETTER?
With the ever-increasing cost of labour and building materials, whether to renovate your existing property or to sell what you have and buy a new home with everything or most of what you want, is a difficult decision to make.
First a number of questions have to be answered to clarify your situation:
- Can your property be renovated – does it lend itself to alteration ?
- After renovation, will your home give you what you want at a price equal to or better than what you would have to pay for a new one?
- Taking your area into consideration – will the renovation be worth your while? That is, if you sell, will you make a profit on the renovation? Take into account the present value of your property without renovation. Will the cost to you of renovating mean you over-capatilise on your property in relation to value in the area?
- Are you prepared to put up with the inconvenience and trauma that a renovation usually entails?
- If you don’t renovate, can you find a property that offers what you want, in the area you want, for the amount of money you have available.
You also need to take the timespan into account. If you intend selling in the short term, unless you are a professional renovator, under no circumstances do major renovations in the mistaken belief that you’ll make a profit.
If you intend to sell within a year or so, restrict your programme to cosmetic improvements, such as painting, wallpapering and carpeting. These are relatively inexpensive, you can probably do some of the work yourself and they will give your property a fresh, clean appeal which, proportionate to the cost should add to its resale value.
Consider more extensive renovations only if you intend to stay for several years or longer and in the knowledge that if you don’t sell, you enjoy the benefit!
Renovating a kitchen, adding a bathroom or putting in a swimming pool are the sort of improvements you’re unlikely to recover if you sell in the short term, but will add to your comfort and convenience if you’re taking a longer view.
So, having answered the previous five questions, you must do the following:
- Determine your new accommodation requirements – the number of extra rooms you need, the type of finish you want, and so on.
- Work out the total extra capital you’re prepared to invest, either in your existing home by way of improvements, or in buying a new one.
- Call in an architect or builder and tell them what you want. Can it be done and at what cost?
- Most important, call in an estate agent and determine the market value of your existing property – as it is. This is absolutely imperative – many sellers make a fundamental error in their calculations by equating original purchase price with present Rand value.
Let me explain : You bought a property ten years ago for R1 000 000. If you were to sell, today’s market value is R1 500 000.
In answering the questions asked earlier, remember to ignore the original purchase price and use the present market value of your home as the starting point of your calculations. In other words, your property stands you in at R1 500 000 not R1 000 000.
Put another way – if the renovation costs R500 000 your property stands you in at R2 000 000 (present market value plus costs of renovation) and not R1 500 000 (original purchase price plus cost of renovation).
Putting it yet another way – if after renovation you sell for R1 800 000, you haven’t made R300 000 profit (original purchase price plus cost of renovation), you’ve lost R200 000 (present market value prior to renovation plus cost of renovation).
Now, with your estate agent’s help, try to determine what your property would sell for, were the renovations to be done.
Remember that a renovation should achieve three things : improve your accommodation, the quality of your lifestyle and the resale value of your property.
Taking the earlier figures as the example – your renovated property should at least make you a profit on the renovation itself:
Present market value R1 500 000
(prior to renovation)
Plus cost of renovation R 500 000
TOTAL R2 000 000
The market value after renovation should be at least R2 250 000 to R2 500 000.
If not, think carefully because there is a possibility of over-capitalising, and in the future, it could be difficult to sell your property at the price you want.
- Having determined what can or can’t be done and at what cost – and having worked out the above answers, visit showhouses in the areas you are interested in. See what is on the market and get a feel of what’s going on.
What will you pay for a new property – can you find what you’re looking for at an affordable price – will it stand you in at more or less than the price you could realise for your existing home after renovation?
In conclusion, there are no hard and fast answers, or easy solutions. In making your decision, take into account that every renovation costs more and takes longer to complete than originally anticipated and in moving from one property to another, additional costs are incurred.
After all is said and done, if renovation gives you what you want at a price with which you’re happy, you might be wise to stay put.
But, if after renovation you still haven’t got what you want in an area of your choice, even if you have to stretch your resources to buy that “dream” home – go for it.
In the available space, we have been able only to highlight the questions which have to be answered, what you have to look for and some of the considerations in deciding whether to renovate or move.
By taking these into account, I’m sure you’ll make the choice which is right for you.
For more advice - e-mail firstname.lastname@example.org or call 0861 JAWITZ
Click on the below links to open to articles
Why Exclusive Authority to Sell
Work with an estate agent
The question of the estate agent’s brokerage fee
First impressions count
Selling your home and buying another
Beware the dangers of over-pricing