Renovating Your Home? How To Make Sure You Don’t Overcapitalise

May 23, 2023 | Property

Renovating your home can be an exciting and rewarding experience. However, it’s important to ensure that your renovations don’t overcapitalise your home. What we mean by ‘overcapitalise’ is simply finding yourself in a position where you have spent more on buying your home and renovating it (or buying land and building) than what the property is actually worth. 

Overcapitalisation tends to happen most often when people start improving their homes without doing their research. What sometimes starts as an idea to give your bathroom a delightful refresh can result in a fancy new kitchen, remodelled main bedroom (with a giant walk-in closet worthy of a social media influencer), and a property that now exceeds its value.

It’s often an astronomically expensive mistake that can make it extremely difficult for you to recoup your investment when you want to (or if you have to) sell your home.

With that in mind, here’s how you can still invest in home improvements without overcapitalising.

First, Determine The Value Of Your Home

The first step in determining whether your renovations will overcapitalise your home is to find the value of your property. Once you have an idea of the value of your home, you can use this as a benchmark for your renovations. This can be done by getting a professional appraisal or by researching the sale prices of similar properties in your area.

Alternatively, you can click here to get a free property report for your home, which will arm you with information about the potential selling price of your property as well as market trends, such as the average selling price of properties sold in the area, land size, the last sales date, and the last sales price.

Research The Market

A property valuation report isn’t just about checking what your property is worth. It can also be used to research the market, which is an important step in determining whether your renovations will overcapitalise your home. Take your time to review the sale prices of similar properties in your area and compare them to the value of your home. This will give you an idea of the potential return on investment for your renovations.

Set A Budget

Before you start your renovations, it’s important to set a budget. This will help you to avoid overspending and ensure that your renovations are cost-effective. When setting your budget, consider the value of your home (thanks to your free property valuation report) and the potential return on investment for your renovations.

Consider The Neighbourhood

It’s worth considering the style and age of the homes in your area and keeping this in mind when planning your renovations. For example, there are some improvements that are out of character with the neighbourhood, which can be a turn-off for potential buyers.

You most likely already have something in mind, like that one house with the beautiful but dramatic turquoise paint job, set amongst a wave of neutral and brick only homes. Buyers looking in this area would likely want to blend in, which means that if that homeowner wanted to sell, they’d either really struggle or need to cough up more money to tone things down.

Focus On The Essentials

When renovating your home, it’s important to focus on the essentials. This includes things like the kitchen, bathrooms, and outdoor living areas. These are the areas that potential buyers are most interested in and are likely to add the most value to your property.

Avoid The Temptation To Over-Improve

While it’s important to focus on the essentials, it’s also important not to over-improve your home. This means avoiding expensive upgrades that are unlikely to add value to your property. For example, installing a swimming pool may be a costly upgrade that doesn’t add much value to your property.

Ultimately, renovating your home can be a great way to add value and improve your living space. The thing is, to make sure that your dreams don’t push you into the space of not being able to ever sell without losing big.

Feeling Informed?

We trust that this information will help you, and don’t forget that AA Inform is home to a range of useful tools and resources – including a personal loan calculator, access to multiple car and home insurance quotes from the AA Insurance Supermarket, and much more.

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