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Overcapitalising – What is it and How to avoid it.

Real Estate

Overcapitalising – What Is It And How To Avoid It.

Are you considering renovating or extending your home? Or are you looking to freshen up your home prior to sale? Either way, you need to be aware of overcapitalising on your property and how to avoid it. 

What is overcapitalising?

Overcapitalising is when an owner invests money into a property – on the initial purchase and on future improvements and renovations – which combined, is more than the property’s resale value.  Overcapitalising is always a risk with any property, however with the right advice and planning, it is a risk that can be readily mitigated. 

How to reduce the risk of overcapitalising?

It’s important to speak with a trusted Real Estate professional to understand what your home is worth today, and what it may be worth following a renovation. Remember, if you’re going to renovate and spend money, do your homework first. An experienced Real Estate professional will provide you with an objective view of where to focus your renovation budget, in order to get the best return. 

For example, say your property is worth $350,000 today in its current condition. After speaking with an experienced Real Estate agent, you may learn that based on recent sales and how the market is performing, similar renovated homes in your area are selling for $450,000. This is the maximum the market will pay for a renovated home in your area. You may therefore decide to only spend $40,000 

on a cosmetic renovation – focusing on key living areas only – in order to achieve the best return on your investment; and not to overcapitalise. 

Where to focus your renovation budget?

It is so important to get the presentation of your property right. With the increase in buyers looking for well-presented ‘ready to move in’ properties, it is always recommended to invest the time to present your property in its best possible light. It is critical all elements and features match and flow within your home – including paint colour, tile selection, windows, and floorboards and carpets.  

Remember, you want buyers to form an emotional connection with your home. Once buyers can see themselves enjoying a lifestyle there, they will become increasingly motivated to purchase. If your home is presented well, with all objections removed, you’ll have a greater chance of creating an emotional connection with buyers; and it’s these types of properties that are selling well above expectations in the current market. 

Kitchen and bathroom renovations, that are modern, contemporary and in keeping with the overall style of the home, will deliver the most value.  However, try to keep plumbing and electrical work in its existing positions, to reduce overall costs.  

Generally speaking, laundry renovations do not add significant value, so do not focus on floor-to-ceiling tiles nor expensive designer cabinets. Instead, focus on functional, practical and contemporary finishes that will appeal to a broad range of buyers. 

Clean the front and rear yards, mow the lawns, plant fresh plants, and place dark mulch/bark within the garden beds to really contrast against the lawn. 

If you are considering painting your home for sale, it is always best to go with light, contemporary and neutral colours. Don’t be too worried about your home looking too clinical or sterile, you can always introduce colour and texture by decorating with pillows, art, or baskets.  Also, don’t be tempted to use a striking colour that you personally love, such as pink or red, which may actually deter buyers. 

Remember, an interested buyer will always notice objections about your property (if you are having trouble identifying objections, speak with a trusted Real Estate agent who can assist). Ensure that within your budget, you factor in funds for removing these objections – for example, cracked plaster, broken tiles, missing pavers, damaged gutter etc. 

What if you are unsure where to start?

Remember to always speak with professionals who can provide you with an unbiased opinion and provide insight on what is trending in the market. 

If you are finding it difficult to know where to start, speak with Mark who can help with information on what buyers may notice about your property and where to focus your renovation budget. 

With Mark being one of Mildura’s most trusted Real Estate Agents, he is well placed to provide you with his view of the current market and how best to undertake a value-added renovation. He’ll thoroughly guide you through the sales process and help you take advantage of this opportune time in the market.

Want to know what your property is worth?

Book a free property appraisal today! 

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