The Cost of Reno’s – Our Home Renovation Tips
Most people will need to update, repair or renovate their home in the time they own it. There is, however, a certain view the bank has on how these renovations are conducted, and ultimately; funded. We commonly see clients getting ‘stuck’ with funding required to finish a project. Get DLS’s home renovation tips and look before you leap!
“Renovation – you either love it or you hate it.”
This hatred, can, of course, be minimised or avoided completely by simply knowing and following the ‘rules’. Here are some tips and guidelines around property renovation.
There are predominantly two ways renovations can be completed in terms of the way they are funded. The first is referred to as ‘non-structural’ renovations. Think re-painting, floor coverings, a new kitchen, bathroom etc. Usually, these types of renovations can be completed under $100K and do not involve moving walls or building permits and insurances.
The second is considered ‘structural improvements’ – major improvements that require structural changes to the property, building permits, council approvals and generally an “arm’s length” registered builder to complete. These renovations tend to creep up over the $100K mark and involve a great deal more risk from a bank perspective.
Here is the key difference as to how the banks look at the two: Equity permitting, the non-structural renovations can be funded to you, the client, as cash – and you then control the disbursement of the funds to contractors completing the work. This means you yourself can do some of the renovations, or even pay cash to contractors and potentially negotiate competitive rates.
Structural renovations will require building plans, a contract with a registered builder and council approvals. The bank will want to control the funds’ disbursement to the builder directly and may conduct interim valuations before completion, to ensure the work is completed to standard.
In terms of the property value, structural renovations are valued as if they have already been completed, ensuring you aren’t over-capitalising. This simply minimises risk, for both the bank and you as the client.
A short note about valuers and valuations: Valuers can not value something that isn’t there. It doesn’t matter that you’ve purchased a complete Bunnings kitchen ready to install – if it isn’t installed, it cannot be valued. In fact, in some cases, it will de-value the property if things are half completed.
We have seen plenty of examples of unfinished renovations where the client was expecting a very different valuation to the one they received, so it is important to understand what will add real value, and what will be overlooked or isn’t as important. There are some exceptions to these rules, which is why it’s imperative that you get in touch with us prior to undertaking any works.
As professional finance brokers, we can guide you through the best course of action, and make the process smooth and easy.
The last thing you need is to get ‘stuck’ without the funds to complete the work you initially set out to do. If you are thinking about renovating, or are mid-job and stuck, give us a call.