A Property blog by Paul Bennion.
During the first two months of 2015, Australians spent $1 billion on home renovations or more than $100 million every week.
Record low interest rates are encouraging more Australians to renovate their homes combined with the growing popularity of tv renovation shows such as “The Block.”
In particular, DEPPRO has found that during 2015 there has been an upswing activity by investors who are taking advantage of low interest rates to purchase properties for renovation purposes.
Typically, these investors plan to renovate the properties with a view to either sell them in the short term at an enhanced profit or keep them long term and boost rental returns through these renovations.
While home renovations can be a great way for investors to make money through property investment, they still need to do their homework before undertaking such as enterprise.
One trap is for property investors to overspend on renovations because they become emotionally with the property.
As a result, they risk over-capitalizing the property which is one of the most common mistakes in real estate.
The danger with home renovations is that the investors can spend thousands of dollars improving their home only to find that when they sell their property, they cannot recover the money they spent.
In addition, many property investors fail to claim their full tax benefits relating to home renovations.
Unfortunately, many investors throw out many items without understanding that they may claim tax benefits on these materials at 100% of its written down value in the year of disposal.
A typical amount spent on a home renovation can range from $20,000 to $60,000 for a basic refurbishment. However, an investor can qualify for both plant and capital works allowance as a tax deduction and the residual write off of the disposed item through tax depreciation benefits.
To qualify for these tax generous benefits, investors have to undertake a depreciation schedule for the property as near as to the date of purchase as possible.
Investor Tip For Property Renovations:
- Focus on the front of the home as this will improve the street appeal of the property.
- Inside the house you should focus on the bathroom and kitchen areas. Improvements in these areas traditionally deliver high returns when the property owner decides to sell.
- For ideas to improve the kitchen and bathroom areas, consider visiting new home display centres. These display homes will have the latest trends in new home design. They can also provide ideas on how to internally finish a home such as the colour of paints on walls and floor coverings.
- Any renovation in this outside area should be fully integrated with the family and kitchen areas. This is because people want to move easily between their internal and external living areas especially during the summer months.
- It is important to ensure that you get local government approval for any major renovations to your home such as building an alfresco area or new external walls.
- If you are employing a builder to undertake your home renovations, check that they belong to a professional building organisation such as the Housing Industry Association of Western Australia. In addition, you can ask them to view recent work which they have undertaken in the local area.
- Set a budget for your home renovations and carefully cost them. If you get a quote from a builder, make sure that it is in writing and there are no special conditions attached to the contract