Expert Advice: The Costs of Renovations Vs New Builds, with Michael Sloan
Undertake a fixer-upper or start with a fresh slate? We speak to Michael Sloan, co-founder and Director of The Successful Investor, about the ultimate financial decision; new builds vs renovations!
Q. For someone looking to purchase a home, what might the pros and cons be for renovating?
Buying a property that needs renovating can mean a lower entry price point. But please don’t think it’s like the TV shows! It’s much harder than that. And if you don’t do a good quality renovation, or if it was done to your taste and not theirs, then all people see when they go to buy your house is a property that needs renovating.
Renovating your home can be an effective way to increase value in your property, as long as you don’t overcapitalise. If you take your time and do most of the work yourself, then you have little to lose.
A major factor in how you renovate is, what’s your goal from doing so? Is it to make your home a better place to live, or are you hoping to add value? You might love a kitchen with a $5,000 stove, but it won’t add that amount to your home’s value; and if you sell in 10 or more years, all the buyer sees is an old stove that needs replacing.
Q. And what might the pros and cons be for undertaking a new build?
A pro is that you move into a finished property with no work to be done – or maybe finishing the garden and that’s it.
The cons can be that you can’t trust all the advertising you see. If you’re buying in a new estate, buy where you trust the developer to deliver on their promises. Many new homes have been sold on the promise of schools and shops being built nearby that never materialise.
Q. Would you ever suggest one over another? If so, why?
The short answer is no. It really depends on the homeowner and their lifestyle, as well as their skill set.
Renovating can be tough work, depending on the extent of the renovation; if you have a young couple with children, who both work, adding a renovation to the mix is a big ask!
Q. Do the above questions change if it’s for an investment property?
Totally! The thing to understand here is that if you’re taking on a renovation for profit, you are not investing; you are starting a business. Once you understand that, you have to ask yourself if you’re equipped to start that business. Do you have the business skills and expertise to be successful?
My experience from interviewing property investors for the past 20 years is that most fail with renovations. The people who make the most money from renovating are those who charge you a large fee to show you how to do it!
Q. How would you go about comparing costs between a renovation and a new build?
The new build price should be fixed, nothing extra to pay; and that includes site costs, this is a favourite way for some builders to get extra money from clients.
If you’re undertaking a major renovation, you must be aware that very few come in on budget. Make sure you do a detailed plan; be conservative, be careful and make sure you don’t run out of money.
There are many stories of people ripping out bathrooms and kitchens and running out of money. The bank won’t lend money against a house that’s not inhabitable, which has left many people in a very poor situation.
Q. Are there any ‘hidden costs’ of renovating that people don’t expect?
Almost every time, but it’s likely you won’t know what they are until you start. Before you buy, make sure you have a building report done and make sure there are no major structural issues with any property you buy.
Q. Are there any ‘hidden costs’ of new builds?
There shouldn’t be, but there often is; you must check your building contract carefully to make sure there will be no surprises.
Q. When looking to purchase a new build, are there any ‘red flags’ or ‘golden nuggets’ to look out for?
It amazes me how many people get ripped off or sign up with a builder who have awful online reviews! Do your research before you sign on the dotted line. Deal with a builder you trust and with a developer who will deliver on their promises.
A golden nugget may appear if you find a block of land that someone needs to sell, and it’s already gone up in value. We find these for our clients all the time!
Q. What are the most common questions or challenges you hear from people undertaking new builds?
Who to choose to build their home! No matter how much research you do, you can’t turn yourself into an expert. So, spend your time researching people that can give you help, guidance and advice – and listen to what they say to you!
Q. Are there any financial ‘insider tips’ you have for someone about to undertake a new build?
If the land is more than three months from settlement, you can’t get a loan that will be valid when the block settles. So be very confident of your ability to get the loan.
And use a broker; the bank can give you the best loan and the best rate they have, but they can’t give you the best loan or best rate from another bank. A good broker can look at 30 banks for you and recommend the most suitable.
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Who is Michael Sloan?
Michael Sloan is the co-founder and Managing Director of The Successful Investor, an independent property investment advisory firm. After 8 years of experience at an award-winning mortgage broker, Michael launched The Successful Investor in 2009, specialising in helping everyday Australians invest in property; a company which has now helped clients invest in over one billion dollars’ worth of property.
If you’d like to see more of Michael Sloan’s work or enquire about his advisory services, you can explore his website here.
Written by Evelyn Kandris