The Ultimate Guide to Renovating vs. Buying and Relocating

You may have a growing family. You may just need a change of scene....we all get that five to seven-year itch when our current house seems old.

What should you as a home owner consider when making a decision on home renovation vs. going to a new home?

Reading this article will help you make a much more confident and informed decision. In it, we’ll explore the upsides, downsides and some practical process considerations of both options before you make your decision about whether you renovate or move from your current house to a new property.

Whatever you decide we can help you with the home loan

We get that the right home loan will make a big difference in a situation like a renovation or house upgrade. The YouBroker digital home loans platform will be able to help you get calculations, rates estimates, borrowing power and approval quickly and easily.

See your home loan rates here at youbroker.com.au/get-started

First, let's put some options down about some scenarios that you may be able to pull off.

1. Get familiar with the key Renovate or Relocate scenarios

You may be looking at other options than just a straight-up sale of your current home.

For example, you might want to hold on to your old property as a rental. So, let’s have a look at the main options we commonly see at YouBroker, so you have a mapping of the typical scenarios and steps.

i) Scenarios where you end up with one property

• Scenario 1: Renovate or remodel and stay in the same home
• Scenario 2: Decide to move. Sell your current property, then move.
• Scenario 3: Decide to move. Get a bridging loan. Buy the new place. Then sell the old place.

ii) Scenarios where you end up with two properties and start a portfolio

Depending on your financial situation, your home equity, and the current market value you could be able to retain your current place as a rental, and buy a new home. In many cases, this could be the best long term wealth creation move.

This can be a great strategy for those that are keen on property investment and want to leverage a good asset that they think will have good capital gains as a long term investment.

• Senario 4: Decide to move. Keep the old place as a rental. Refinance the old place. Buy the new place.
• Scenario 5: Decide to move. Decide to construct a new home. Build the new place. Keep and tenant the old place as a rental property
• Scenario 6: ...and the other twist to the above two, is to renovate your old place to add to the value of your home, then buy your new home and keep the old one as a renovated investment that may have a stronger rental potential.

2) When should you renovate?

If you’ve ever seen the Three Birds Renovation books and Instagram posts, you’ll know how wonderful a renovation project can come out.

[insert before and after 3 birds project and link).

With the right design, builder and trades, and some dedication, a renovation project can really add property value and lifestyle impact for you and your family.

Renovations can be cost-effective. Consider the $30,000 - $150,000 you may pay in stamp duties on a new home in Sydney, Melbourne, Brisbane, Perth or Adelaide. How far could that go towards a renovation?

As the renovation goes on, the house will likely become a bit of a hassle to live in, with mess, sawdust, and timber around. So, you may want to consider a rental for a short time period as this happens. Renovations can carry cost overruns and hidden cost actors, such as landscaping, additional fixtures, and additional finishing touches.

Where possible, always communicate and negotiate with your trades to outline what you want, and then ideally get a fixed cost quote for the completion to that result.

As you go through your renovation, remember to inspect for any defects and keep the communication lines open with the builder or contractors.

It's a hard question to answer without knowing each client's individual circumstances, but one of the questions we get asked is if renovating is the preferable option for their circumstance at the time.

3) What Level of Renovations will you need?

Think about what renovation budget you will need.

• Structural renovation or Major renovation {text]: $100k-$400k
• Minor renovation [text] $10,000 - $100,000
• Adding a second story: : $250k-$400k. This is a major undertaking and is considered a structural renovation. Costs are $250k upwards, and will take a number of months to complete.
• Be aware that many major renovations will require plans and permits or council approval. This adds some costs for paperwork, and design and planning draughting, but are to be expected to ensure the quality of your building is enhanced and fits within the local laws.

4) What is overcapitalising?

Overcapitalising describes a situation where you are “putting too much into” the property, versus what the suburb and area can justify in resale or value.

For example: a slick, modern $1.5m building in Logan (currently one of Brisbane’s less affluent areas) would be out of place and would be overcapitalising, as the typical dwelling cost (not the land cost) would be about $300k-450k, and not $1.5m building standard.

The buyers for that property at a $1.5m build would not want to buy in Logan. Instead, that would be more in place in Bardon, Grange, St Lucia, or Paddington, where land values are higher, buyers’ incomes are higher, and million-dollar builds on million-dollar land plots are more justified.

A rule of thumb is to:

• Be conscious of the usual sale prices in your area
• Avoid spending too much on a renovation, 5%-20% of your house’s value is a suitable range for a medium to large renovation.
• If you spend over 20%, consider getting a Building Contractor like Metricon, GJ Gardner, Symonds, or a local but well-regarded builder to quote you on a full knockdown and rebuild. It’s possible that this may work out better (building prices are typically between $400-$800k and are packaged based on specification and size of dwelling).

5) Consider: How flexible is your location?

If you love the area you live in, you are in a certain school where you would like to stay for your children, your wider family members, or your community, sports teams and neighbours.

Moving will also create some stress and moving hassles.

But, if you need a change, and don’t absolutely love the area you live in, consider the option to move to a new property.

But it's worth mentioning that a renovation to spruce up your home is usually money well spent, which can play into a higher valuation or eventual sale price.

You can increase your current house’s property value dramatically with even minor renovations, so in the future or when you do decide to sell, you will reap a higher return.

6) Would moving be better?

If you don't have the time or the patience you need to go through council approvals and a renovation, then a new house may suit your family the best.

If you are price-sensitive before you make a bid on the new home, do some simple calculations about how much selling your current property is actually likely to cost you and some home loan planning. For example:

1. Your exact home loan borrowing potential, home loan comparisons, and valuation on your place to sell. The good news is you can get this done via YouBroker.com.au on our easy digital mortgage platform.
2. Selling costs, such as: real estate agent selling costs (usually 1.7-2.5% of the sale price); advertising fees, conveyancing or legal fees, and perhaps accommodation fees if you move out while the sale goes through.
3. The budget for up styling your current property for sale and ensuring it's market-ready. This is optional, but in higher-end properties, it can really help make an impact on the sale price.
4. The cost to make some minor improvements to your current house to spruce it up, ready for sale

Consider your borrowing power on the new home

This is an essential step in making an informed choice. You have to consider what sort of property and location that new home will be in.

So that you are prepared ahead of time, it’s always good to check the borrowing budget you have and have that outlined as a “Funding Position”, which shows all the fees, stamp duty, and breakdown of items payable in the new property transaction.

At YouBroker, you have the option to create this within the platform and to have it professionally checked and verified so that you are fully informed before taking a leap into a new home.

We can work out:

• Your maximum borrowing power at multiple lenders
• Help you navigate the options you have (2 properties or 1 property)
• Help you find and select the most appropriate rates and home loan products so that your property goals are met.

Could you make the old home a rental?

Depending on your home loan borrowing power, you may be able to keep your current home and make it an investment property, while buying an upgraded new home.

This is a very common scenario and is a popular way most people start investing in property, especially if the current home has grown in value and is generally in a good area with good capital gain prospects and the ability to rent it out for good cash flow to cover that investment mortgage.

The practical process to get this done involves:

1. Getting a valuation and borrowing power done via www.youbroker.com.au
2. With the income, rental income, your equity, and savings combined we will guide you on the potential budget for a new property while retaining your current home.
3. At the end of this scenario, you now own 2 properties and are likely to have a higher net worth and asset value position over the long term.

How should I set up my home loans?

If you are looking for personalised service about what you could achieve by renovating or buying your next property then YouBroker can help.

We are experts at mortgage structures and home loan planning, so you can get the best deals and the best structure for the renovation or moves you are looking to do.

Via our free online mortgage platform, we can quickly help you get

• A Bank valuation for your property, including its rental income potential.
• See if you can take out a loan for the renovation costs you are looking at
• Help you decide on major or minor renovations by giving you a home loan finance perspective and affordability within your home loan borrowing power
• If you want to move, help you map out what a buying power will look like
• Thinking of your old home as an investment? If you want to hang on to your property as an investment rental property, what your borrowing power will look like in that situation when the rental income is included.

Get your personalised offers and rates at www.youbroker.com.au via the Get Started link