As an investor, you should constantly be finding ways to improve the properties your portfolio, right?
Not necessarily. While we understand where this logic comes from, you need to be aware of the risk of overcapitalising when planning your renovations. Here’s why.
What is overcapitalising?
Overcapitalising occurs when the cost of a home improvement ends up costing more than the value it adds to your property. You can also overcapitalise by renovating a home beyond what target buyers will actually pay for it.
For example, say you purchase a property for $650,000 and spend $100,000 in the kitchen. That doesn’t mean your home is now worth $750,000 if similar real estate is only selling for $675,000.
In this case, you’ve overcapitalised.
How do I avoid overcapitalising my Canberra investment property?
The right renovations can add significant value to your home, but how do you know which could also run the risk of overcapitalising.
As a general rule, avoid renovations that cost more than 10 percent of the total value of your home.
Also, look for those ‘quick fixes’ that instantly make a space look fresher and more modern, such as:
- New curtains or blinds,
- Fresh paint,
- Purchasing kitchen appliances,
- Updating light fixtures,
- Refinishing flooring.
If you need advice, speak to your property manager. As real estate experts, they’ll be able to give you tips on how to stand out in today’s market.
