From a couple of tins of paint to bulldozing the back half of a house: any renovation, regardless of the size, costs money. Our home finance expert Lisa Barton offers her top tips for those who are looking at how to fund home renovations or jazz up their investment property.
It’s so easy to move into a property and start making a list of all the things you want to change, starting with the hideous floral carpet in the lounge and ending with the rusty taps in the bathroom. However, it’s a good idea to live in a home for a year before you start ringing around local builders. Not only will you get to know your new home inside out, you’ll also get a feel for which home renovations projects need to be financed immediately, and which ones could wait until you’ve built up some more equity in your home.
It’s amazing what a lick of paint and some new carpet can do to alter the look of a lounge or bedroom, and these changes can often be made possible using your existing savings. It’s so easy to over-capitalise on a property, especially if it’s a rental, so have a think about spending a small amount – as little as a couple of thousand dollars – on fresh paint or new carpet for an instant lift when you walk into the room.
For medium scale home renovations, where you’re looking at spending over $10,000 on a new bathroom or kitchen, your existing bank may be open to offering you a top-up on your existing mortgage via a revolving credit loan. The great thing about revolving credit is that you can draw down only what you need at a particular point in time, so you’re not paying interest on funds that you’re not using yet.
For larger renovations that include structural or floor plan changes – like adding a bedroom or gutting a significant part of the house – the bank will quite likely want to see your blueprints and your council consent before agreeing to release funds. In many cases the bank will pay the funds directly to the tradesperson after receiving an invoice, rather than to you directly. While it’s tempting to escape the renovation stress with a last-minute trip to Fiji, the bank needs to ensure that the money loaned for the renovations is being spent on the house.
It’s quite normal for the bank or lender to look over your plans and suggest that you might want to scale them back a wee bit. It’s not because they don’t like the look of your $30,000 kitchen makeover – instead it’s because you’re at risk of over-capitalising by investing money in your property that you won’t get back when it’s time to sell. This is especially true in regional areas where capital gains can be slow.
No matter how long or short your renovation wish-list, I’m happy to help get you started – I’m all about finding ways to fund home renovations. Get in touch and let’s talk!