Maximum spend on renovations for PPOR

Hi Guys. Looks like a great forum - just found it today.

The gist of the question is - how much would you spend on renovating your PPOR? and should you consider cost of renovating your PPOR?

The detailed question is:

We are currently purchasing our PPOR. We are in Vermont in Melbourne on a Dual Occ, in the original front house (circa 1960 - ~ on 380 sqm) weather board. The house is a 3 bedroom, 1 bathroom, 1 living area, + dining room (~11 square). We do not yet have an IP but are hoping to do so in the next year.

We have not finished having children - and are looking at renovating to add study, en suite and extra living area and more storage.

We currently owe around 280K and expect it to be worth 450K at the moment.

My problem is, I keep in the back of my mind ("I am not spending 100-120K, just to add the same in value") so am conservative in my designs and what I would like to do. Where as my wife is more liberal in her designs - some times causes a bit of tension.

I guess I would like to know, what the top price our place could be valued at if we had say 200K to spend, or - what is the optimal amount to spend to minimise LVR gain, so we still have enough equity for an IP down the track.

I guess we might be better keeping the place as an IP and finding something that suits our needs, but our neighbors are great, and we don't really want to move.

Another question:
*) would it be better (price/valuation wise) to add a second story, given if we want to come out 3 meters along the front we have to move both the meter box and the incoming mains power?


My advice to you would be 'You should just listen to your wife.'

No, just kidding. I don't have any reno experience, but there are a lot of people on here with extensive reno experience (lizzie) who can help you with tips.

As far as value goes, trawl real estate websites to get an idea of what houses around your area are fetching. Then when you have an idea as to what you want to do and how much it will cost, that will probably give you an idea.

Maybe go look at Open For Inspections as well?
Could be easier to sell up and find a bigger place.... lol...

I am currently finishing off renovating a duplex site, little over all the stress and running around....

Tho what Mark said, have a look at similar properties to gauge the price and see if it is a viable option to spend the coin on your PPOR.

Are you going to do any of the work yourself or get tradies to do the whole lot?
It depends on how long-term your view is. In the current market, I'd be very surprised if market value increased by the cost of renovations immediately.

As a guide, I would look at whether new-build or existing stock represent better value in the current market, ie would you be better off buying your home, or could you buy a similar sized block of land and build an equivalent home, for less, in your area? My sense is that in nearly all inner/prime areas of Australian CBDs, existing stock represents better value, ie it costs more to re-build than to buy, in the current market.

Because this comparison includes measures of both the market sentiment and construction costs, I think it's a reasonable guide as to whether extending is worthwhile, too. So at the moment, I think the extension will cost more than just buying another house that's the size you want, but I'm not familiar with your particular market and you may take a different view of the outcome of such a comparison.

Balanced against this:

1) Sometimes, if a house has a particular disadvantage relative to what's expected in your market, it's worthwhile renovating to remove this disadvantage, irrespective of the market. eg If everybody expects off-street parking, and you don't have it, then adding it removes that obstacle, and is probably worthwhile.

2) If it's a long-term PPOR, the market is very forgiving over time, and you need to consider what value your family gains from the improvements, in the meantime.

3) If you make your house a "premium" property for the area, this is likely to pay off come the next boom (if you're confident of staying that long; it could be many years off!). As an example, our PPOR was purchased in 2001. It's twice the size of other homes in the street. When we bought it, the weak market meant it was only valued about 20% above the other homes in the street, but now it's a good 50% higher. Weak markets don't drop all prices by the same amount, because there's a natural "floor" on prices; higher-end properties tend to take a bigger percentage hit than average properties. But conversely, when the market picks up, your renovated property is likely to pick up by a higher percentage. In other words, a weak market tends to compress prices into a narrower band, whereas in a strong market, premium properties do very well and the gap increases.

Good luck with your decision, I hope this helps. :)
oh dear - this post grew a little longer than expected ...

as mark said - you need to look at everything that comes up for sale in your area and decide what people are prepared to pay for what standard of property - and what is the standard expectation of finish for the area. in no way should you have the most expensive property in the area but be realistic in what the expectation of buyers in the area is.

i had continuous "discussions" with hubby regarding this on our last ppor (and the one before that and the one before that). we sold 6 months ago. he wanted to put in laminate when the expectation for the area is stone. he wanted only one bathroom when buyers in the area want two. he didn't want to increase the deck area when the area is an "entertaining" location. needless to say i won every debate. we sold within 4 days of listing for $100,000 net profit.

however, if we'd been in a suburb that the standard is laminate, one bath and grass backyard then that's the way i would have gone.

without knowing what your area expectation is, i can't comment on whether you wife is right or not. i have seen some shocking examples of overcapitalisation in lower value areas that don't justify what was spent - and only realised by the owners when they try and sell their $1mil cost house in a $400k average price suburb.

we're looking at a reno of our current ppor - architect comes for 2nd visit in january before drawing up plans.

we have owned this house for 4 years - although had it rented for the middle 2 - and it is rather interesting to see the shape the street is taking since we bought. the area was developed in the 1970's, so a lot of weatherboard and fibro cottages. however, we are in merewether (5mins to cbd, beach, shopping etc) with ocean views, so in the last 4 years in our street several of the old houses have sold, knocked down and multi million $$ properties built in their place.

this rather defines what we need to do. our place is only 20 years old, with good brick bones (built after earthquake damaged the original) but very dated to the 80's as was built to the then trend of pseudo colonial brick and lacework (yuck). we know we have to tug it around a little and reno to the new street standard - which is heading towards the $2mil.

even tho we plan on staying here for the next 10 years, i am very aware of renovating to a timeless (not trendy), classic and quality standard that won't date and is appealing to the masses.

this means a minimalist decor (which i love anyhow). lots of white, natural products and colours, seamless windows, open interior spaces for entertaining, enclosed indoor spaces for time out, outdoor landscaping as an extension of the indoors, tonnes of storage. it also means keeping the 5 bedrooms even tho there are only 3 of us.

i also intend to only spend $1 for every $2-3 of value increase.

you can get an expensive looking finish without the expensive price tag ... buy your stone benchtops direct from the stonemason, self assembled flatpak gloss kitchen, bathroom items from renovation discount stores (less than 1/2 price in some cases), buy your carpet through the carpet layer so get trade discount and don't pay store markup on his labour, keep an eye out for tile sales and shop around, don't follow "trends" as they date very quickly, a $100 stainless tap set looks just as good at a $300 stainless tap set if you choose wisely. endless little tips - but the big one is to decorate in a clean, timeless style - and add your personality with the furnishings.

an example of something we've already done ... the pool area. pool was brown pebblecrete with a green waterline tile and surrounded by large pool deck in red terracotta tiles. very 80's. drained the pool, acid washed and repainted in a dark blue, chipped up and retiled the entire area in midsize offwhite tiles with grey grout, retiled the waterline with same colour but mosaic sized tiles. took apart the glass panel fence, sanded and repainted the white steelwork in charcoal and put back together.

now looks modern and brand new. recieved lots of positive comments from the builders working next door and associates. cost? no more than $5k including labour for retiling (i do all the hack work like ripping up the old tiles).
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Thanks guys for the extensive response. Following your very detailed response I decided to purchase a sales history report for Vermont.

Looks like nothing really sells for under $500,000 so I guess I could use that as a starting point.

I reckon that what we want to do (extra bedroom with en suite, and another living area) will really add value to maybe a bit above $600,000.

A final question, does anyone know what percentage a bank valuation would normally come in under a real estate valuation/market value?

Thanks again for the great responses. I look forward to the journey
A final question, does anyone know what percentage a bank valuation would normally come in under a real estate valuation/market value?
There isn't one. Our latest valuation came up at 40% under market. I put in a formal complaint about that and haven't heard a peep back from them and the '45 days to respond' is well and truly over.

This particular house has been done up to the highest sensible standard for the type of house it is. It is now 'nice'. Not dated or awful or needing work, you just walk in and go "oh, isn't this nice". We're hoping to get a buyer with no imagination at all, since this house officially has absolutely no potential now :)