How to Avoid Overcapitalising When Renovating Your House

How to Avoid Overcapitalising When Renovating Your House

Private Property South Africa
Private Property Reporter

While the property market is slowly but surely showing signs of recovery, it is unlikely that it will soon experience the same level of growth than in the years prior to the recession. It is thus that more important to maximise the potential of your property investment. One way of ensuring you would be able to make a reasonable profit when you resell your house, is to avoid overcapitalising when renovating the property. Overcapitalising effectively means to “improve” your house beyond its market value. As a broad general rule, you should not spend more than 20% to 25% of the value of your house on renovations. If you bought the property for R800 000, 25% amounts to renovations of no more than R200 000. Even if you do not spend a lot of money on improvements, take the time to really consider if a swimming pool will increase the value of your property when you sell it again in years to come. Certain renovations are more likely to add value to your house than others. Ask yourself if most people will consider the change to be beneficial. Some reconstructions might even be detrimental to the value of your home. Most suburbs usually have a ceiling value – potential buyers will normally not be willing to spend more than the ceiling value on houses in the specific area. Make sure you are aware what the market dictates – even if your house is the most exquisite property in the neighbourhood, it will still be subject to market forces. Make a few calculations, draw up a budget and stick to it. You should be on the lookout for special offers on building materials. Ask friends and family members to recommend a reputable builder. The builder should also supply detailed quotations before starting with the renovations to insure that you stick to the budgeted amount. While DIY can be a cheap alternative to getting a reputable builder, this should only be considered if you really have the skills and experience to produce a quality result. It is no use to save R50 000 while renovating just to spend another R100 000 to fix substandard building methods in coming years. Choosing a reputable builder will not only save time, it can also prevent a few headaches. Remember, there is often a good reason why a certain builder is much cheaper than his opponents. Renovations that may be worth considering at the moment include improving the energy efficiency of your house. “Green” houses are currently a big consideration, especially as the price of electricity will continue to increase in the next few years. Consider installing solar heating panels or a solar geyser – you will not only recoup the initial capital investment by savings on your electricity bill over time, greener choices will also improve the value of your property. You can also think about the following renovations:

  • Improving an old-fashion bathroom or kitchen – it is often said that the bathroom and/or kitchen is the main selling point of a house.

  • Utilising additional space to build a garage or setting up a parking space.

  • Installing burglar bars in front of windows or installing an alarm system.

  • Creating additional storage space – for example installing some cupboards.

  • Building or creating an extra bedroom – especially in houses with only one or two bedrooms.

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