Reno - how much not over capitalising?

I am a newbie regarding renovation and in my other post i spotted the word "over capitalizing". I would like to gather your opinions on this to avoid any such issues down the track.

I am not sure what would considered "over capitalizing". This is a 3 bedroom, 1.5 bath, 18 year old, two story townhouse. I am planning to live here for 3-5 years and then might turn it into an IP. The property has been rented at $400 per week with its current condition. I have maximum of $40k to spend.

The kitchen is rather old and in an ugly dark green colour, which i am planning to get a complete new one. And the current budget for this is around $10K including all appliances (which will be $2K). I haven't quite decided on the bench top yet, a stone bench top might look nice, but i am not sure whether it is overkill for a townhouse. I am currently leaning towards getting a laminated bench top for this reason, but i am a bit worried it might not last long, which might be a bad choice in the end?

The bathroom upstairs is a two-way bathroom, which has separate bathtub and shower in one room with a door connecting the main bedroom, and another door connecting to another room with vanity and separate toilet. The vanity is rather old, but other parts are ok, although not of a modern looking. I have never used a two-way bathroom before and initially really wanted to convert it into an ensuite bathroom plus a main bath. But it seems it would be really a costly job, so the other options i am thinking are either just change the vanity to a dual basin one and keeping everything else or a complete reno but still keep it as a two-way bathroom.

There are other things like flooring I really wanted to change them at the beginning. As the ground floor (living, dining, kitchen) is dark gray colour tile through out, of which the colour i really dislike. The upstairs including stairs are dark colour cheap carpet, of which the colour i also dislike. Timber flooring would be ideal, but considering which would need removing all the current flooring, which are only three year old, and all the cost involved, it might be considered "over capitalising", is it? And also maintenance involved if leasing the place out down the track is another concern. The cheapest option i am considering would be buying lots of pretty rugs and put them around the house. It is not ideal, considering all the cleaning involved down the track. P.S. I am also thinking of getting a small dog, which is another factor to consider flooring options.

Sorry, i have too many ideas and really don't know what i should do, how much i should spend to balance my comfortable living and avoid "over capitalising".

I would much appreciate your opinions on this. Thanks in advance.:)
 
A couple of pictures of the current condition might be easier to give advice.
 

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The definition of over capitalising is when you spend money on a property that doesn't add any real value to it. This can be fairly subjective as what might look great or ugly in your opinion might be the reverse for someone else. It's got very little to do with an actual dollar figure.

The photos you've displayed make the property look fairly good in my opinion. There doesn't seem to be anything particuarlly wrong with it, so it might be that anything you do could be considered over capitalising. Of course, from a few photos it's simply not possible to make a decent assessment.

What would you like to do to the property to improve it? How much would that cost and how much would it improve the value of the property?
 
The kitchen is rather old and in an ugly dark green colour, which i am planning to get a complete new one. And the current budget for this is around $10K including all appliances (which will be $2K). I haven't quite decided on the bench top yet, a stone bench top might look nice, but i am not sure whether it is overkill for a townhouse. I am currently leaning towards getting a laminated bench top for this reason, but i am a bit worried it might not last long, which might be a bad choice in the end?

I would keep the new kitchen a light colour and pay a little extra for maybe a man-made stone or some type of composite bench top. Or timber. It would "dress up" your kitchen. Laminate just looks like laminate, and rarely looks "expensive".

The bathroom upstairs is a two-way bathroom, which has separate bathtub and shower in one room with a door connecting the main bedroom, and another door connecting to another room with vanity and separate toilet. The vanity is rather old, but other parts are ok, although not of a modern looking. I have never used a two-way bathroom before and initially really wanted to convert it into an ensuite bathroom plus a main bath. But it seems it would be really a costly job, so the other options i am thinking are either just change the vanity to a dual basin one and keeping everything else or a complete reno but still keep it as a two-way bathroom.

Bathroom looks dated, but I would either replace the vanity doors with white or replace the whole vanity with new. If the base is sound, you could replace the top and the doors and maybe put two bowls instead of one, but it is hard to see how much room there is from the photo.

I imagine that colour wall tile would not be your choice, but if they are in good condition, I would consider making everything else white (or a pale colour that suits the tile colour) or maybe get the tiles professionally sprayed white. Update the plastic towel rails and update the door handles and tap ware (bath, basin and shower - all chrome - ditch the white taps) and it would make a big difference.


There are other things like flooring I really wanted to change them at the beginning. As the ground floor (living, dining, kitchen) is dark gray colour tile through out, of which the colour i really dislike.

I wouldn't spent money replacing the grey tiles. I actually think they look pretty good from the photo. I don't think replacing them for another tile or even timber will provide any extra value. I imagine the tiles there already would handle doggy wee better than any timber floor you might replace it with.

The upstairs including stairs are dark colour cheap carpet, of which the colour i also dislike. Timber flooring would be ideal, but considering which would need removing all the current flooring, which are only three year old, and all the cost involved, it might be considered "over capitalising", is it? And also maintenance involved if leasing the place out down the track is another concern. The cheapest option i am considering would be buying lots of pretty rugs and put them around the house. It is not ideal, considering all the cleaning involved down the track. P.S. I am also thinking of getting a small dog, which is another factor to consider flooring options.

Sorry, i have too many ideas and really don't know what i should do, how much i should spend to balance my comfortable living and avoid "over capitalising".

I would much appreciate your opinions on this. Thanks in advance.:)

If the three year old carpet is good enough to live with and rent with, then I would leave it. Rugs that disguise it for your time there mean you don't have to live with a colour you don't like. If it "needs" replacing then that is different, but it sounds like it just isn't to your taste, which also means you don't need to waste money changing it.

Photos of upstairs carpet would be good.
 
Thank you guys for your quick response. I shall read through slowly to take in the advices.

Here is one more photo from a bedroom showing the dark colored carpet:


cheers
 

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"Over capitalizing" can be a big problem, especially for newbie investors. Don't get too emotional about your renovations. Remember that your intention is to make the most amount of return on it, not to make it aesthetically pleasing and emotionallly satisfying for yourself.

With that in mind, whenever you are about to do a particular renovation, I suggest trying to get a quote on the job in order to give you an estimation of the total costs. Then, try and figure out a reasonable return on that cost, such as returns in the way of adding equity to your home, but also in the way of giving you an increased rent per week. Then do the numbers and see if your return is actually woth it, or if you are btter to put your money somewhere else. Once you start gtting to a point where your cost of doing renos will NOT give youa better return than if you invested it somewhere else, then move on. That's how I'd approach it - more based on the numbers (rather than emotions), in order to avoid over-capitalization.
 
I quite like that carpet :D.

I would not rip it up just because you don't like the colour. That would be overcapitalising.

I'm also wondering if you could keep the carcass of the kitchen and replace the doors and benchtops and maybe the appliances. If the carcass is in good condition keeping it might give you enough "spare change" to pay a little extra for the more upmarket benchtops that would give your improved value (in my opinion).
 
The definition of over capitalising is when you spend money on a property that doesn't add any real value to it. This can be fairly subjective as what might look great or ugly in your opinion might be the reverse for someone else. It's got very little to do with an actual dollar figure.

The photos you've displayed make the property look fairly good in my opinion. There doesn't seem to be anything particuarlly wrong with it, so it might be that anything you do could be considered over capitalising. Of course, from a few photos it's simply not possible to make a decent assessment.

What would you like to do to the property to improve it? How much would that cost and how much would it improve the value of the property?

Hi PT_Bear, thanks for your reply. That is very helpful for me. Ok, i got you-- anything that just personal "taste" related would be "over capitalising".

Yes, the current condition isn't too bad although the kitchen and bath are old. The rent of $400 is kind of a proof for this, considering i bought this place for a bit over $330K. So i would be careful not to spend too much, as i don't think there are too much room for the rent to improve.

As i listed, i am considering new kitchen, new/partially new bathroom, and maybe timber flooring. The cost vs. value added is still a hard question for me to ponder.
 
If the three year old carpet is good enough to live with and rent with, then I would leave it. Rugs that disguise it for your time there mean you don't have to live with a colour you don't like. If it "needs" replacing then that is different, but it sounds like it just isn't to your taste, which also means you don't need to waste money changing it.

Photos of upstairs carpet would be good.

Hi wylie, thank you so much for your detailed advices, much appreciated :D

Ok, i might get a stone/composite bench top then, if it is not overkill as it is just a townhouse. The gray tile will probably stay ;P, i won't let my personal taste play too much role here, although i really really like light colour ones :cool: en... I may also keep the carpet, it is not too bad for leasing in the end.

Thanks for your advice on the bathroom as well. I may do a bit more work here than i thought before. The keeping old base and makeover instead of whole new stuff is another good idea. I might get some quotes to see how much difference in regarding to the cost and result.
 
"Over capitalizing" can be a big problem, especially for newbie investors. Don't get too emotional about your renovations. Remember that your intention is to make the most amount of return on it, not to make it aesthetically pleasing and emotionallly satisfying for yourself.

...

Thanks for your advice M.Investigator. I will make more reasonable rather than emotional decisions on this :)
 
One thing you can do? Ask your property manager what renovated and similar properties in the area are renting for - if an increase in rent is what you want later on. Also, look at other similar renovated properties and what they're selling for.

If you're not going to use the equity for a while, then hold off renovating until you need to.

If it's to pull equity via a revaluation, then make sure it's cosmetic and long-lasting changes that you make - nothing that you will have a lot of wear and tear on while there.

If it's a PPOR with no attempt to use equity any time soon then don't rush it. Things quickly outdate. Obviously, make it liveable for you though.
 
I'm with alot of the other guys, why???

The colours may be a bit on the fierce side (kitchen/bath) but unless there are signs of wear I wouldn't go there. The idea of value adding is to add value to get a better return, not to make you feel better about it.

Unless the property is substantially below the quality of other premises on the market, doing work and improvements will not improve your return.
 
If its staying rented and assuming you can get 6% for your money will it increase rent and value by more than $46 per week?

If not why not put the $40K in the bank on fixed deposit or even better offste it on your PPOR mortgage?
 
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