Thinking about giving your hub a facelift?
Renovations can be super fun to plan.
Then, as you go into the dough of things, sometimes the joy becomes pure and simple pain. PAIN. Dealing with asbestos and tonnes of dust, managing workers and sorting out problems that arise along the way.
But once those are done, you’re in heaven mode. Your dream home has finally come true!
Now, how much has this roller coaster journey cost you?
If you have only scratched the surface of what this might cost you, then you should probably read: Money habits can make or break your wealth.
Before you get going with renovations, take stock and make sure you’ve considered all the financial aspects of your project.
A renovation might be the best idea to increase the value of your home and help you build your wealth – or it may be just a whim, in which case you need to decide if you can afford it financially.
We’ve prepared seven things to consider before putting hammer to nail – but you can always add more to the list.
1. Is this renovation necessary?
There are many reasons to renovate a property. You know yours better than anyone.
However, family renovations stand apart as being emotional renovations. In this case, you may be tempted to make changes or buy things that you don’t really need.
It’s also known as impulse buying and it can negatively affect your wealth.
So, before doing anything else, take some time to really consider your reasons. Is this renovation necessary?
2. How will it impact your property’s value?
If you’re renovating to sell, it is a good idea to get your property evaluated by a professional before you do anything to it.
Their feedback can help you decide if it’s worth investing your money in the renovation or not.
For example, a $50,000 renovation might only increase the sell price of a property by $10,000 – and this might not be good for your wealth plan.
Get your facts right: How much do you know about goals-based investing?
3. What’s your budget?
Speaking of numbers, decide on a budget for your renovation. Now is a good time to think about how flexible your budget is in case you stumble upon project “hiccups” along the way.
Keep a close eye on the budget throughout the renovation. Costs can escalate quickly!
4. How will you pay for everything?
Can you pay everything on the spot? Do you need to get a credit? How long will it take you to pay it back? And how will this affect your wealth long term?
If you’re using equity in your home loan or redrawing an amount from a line of credit or other financing arrangements, factor in the extra repayments, feed and any impacts it might have on your wealth and your lifestyle.
Learn from others: Financial lessons from the super wealthy
5. What’s needed and what’s not?
This goes hand in hand with point number one, referring to emotion based decisions.
Make a list of things you really need, a list of things that would be nice to have and a list of things that you want. Decide if your budget can support everything.
Take out any unnecessary items – in some cases you may be able to cut back on “wants” and “nice to have”, especially if you encounter extra costs down the way. It’s a simple way of adding a bit of extra flexibility to our budget without spending extra money.
6. Do you need to move during the renovations?
If it’s just a room you’re renovating, you can live in the property during the renovations. If we’re talking about a full home renovation… not so much.
Living somewhere else might imply new costs, and I’m not talking just about rent. The temporary location might be further away from your workplace or your kid’s school, which means more time on the road, more money on fuel etc.
Take into account all aspects of living in another location and see how they will impact your wealth.
You might also like: Would you buy a house with friends or relatives?
7. Are there any local planning laws you should obey?
Check with your local council and your body corporate to see if there are any local planning laws or strata title rules and regulations in place that may put restrictions on your renovation plans.
Here’s everything in a nutshell
Most of the time, renovations are stressful, painful and unpleasant.
When thinking about wealth, you need to take into account how a renovation might impact your financial situation. Very often such a project can have two outcomes:
- The renovation can boost the value of your home and thus positively impact your wealth long term
- The renovation can cost you money you don’t have right now, or it might be an expense that leaves your pockets empty, in which case you need to evaluate if it is really a necessary investment
Planning your renovation ahead of time can help you avoid unnecessary costs. It can also help you figure out the value in the long term.
Not sure how renovating your home will impact your wealth?
I’d love to crunch the numbers with you. Let’s find out together the outcome of this investment.