Richmond VIC Reno

[John Kimble]

Hi Guys,

First time poster.... but I've been enjoying the site for a while now. Thought I'd put this out there for some assistance from the esteemed members of the blog.

We have a semi detached three bedroom Victorian in inner Melbourne - Richmond (PPOR). The house needs some fairly serious updating but is completley livable, so we've been bidding our time working out exactly what it is we want out of it.

We managed to get the house relatively cheaply in early 2008 and since then the equity has grown considerably. We are now keen to a do a pretty extensive rennovation but am wondering about the cost to do a rennovation and the opportunity cost of using this money elsewhere.

We plan on living there for another 5-7 years.

To give you a run down:

$380,000 oweing on house
= $350,000 equity

Option 1.
$200,000 - $250,000 renovation: Upstairs, downstairs, the works.

Option 2.
$150,000 renovation: downstairs updating.

Option 3.
$50,000 tart up, sell and invest money elsewhere.

So, do we take the $350,000 equity now or work on the theory that positive changes to the house will recoup this and more by the time we wish to move? I'm wary of over capitalising but also conscious that it is in a very desirable area of Melbourne.

Looking forward to your repsonses.

 

[buzzlightyear]

JK, welcome to the forum. Period home and great location, you are very well positioned. I guess there are combined personal/lifestyle and investing issues here that will impact on what you could do.

You state you are planning to stay 5-7 years. The question then becomes, does the location, size and layout of the home going to deliver what your existing family size is today and into the future. Not sure about children in your picture, but if so, schooling and location and also where you work as well (in terms of location). These ultimately are personal choices and difficult for someone else to make an assessment.

At the same time, you mention that you could update and sell or sell as is and purchase an investment. Would you then rent or buy elsewhere? And if you do buy elsewhere, you aren't going to have much left over to invest. It would be a zero sum gain unless you want to substantially downgrade (which I am guessing not).

You could of course rent Richmond, borrow against the existing equity and purchase another IP or invest in shares etc. But that may not suit your lifestyle.

With regards to your three options, as a general rule from my experience and seeing what prices for homes are selling renovated and unrenovated, very few people can do a minor update, sell immediately and have it payback. ie spend $50k as you say, and get back over $100k. In a rising market that will happen more often, but in a more subdued market, I suspect it won't be worth your while. The other factor is that people I think, as long as the house is structurally OK, or at least those looking for a PPOR to put their stamp on, will pay a premium for unrenovated properties, especially in Richmond and especially for period homes.

So if you decide to sell, leave as is. Of course if paint is peeling, or there are some large cracks in the plaster, those things can be touched up, but that would be all.

The easiest way to know if the two reno options will make sense financially, then look at similar properties that are renovated with the features you mention and what they are selling for. My guess is that if your house is worth $950k, a renovated house under say option 1 would sell for ~$1.2k and your reno cost would be $250k. A substantial renovation like that to me is more about having the house meet your accommodation and lifestyle needs not spending x to get back x+. Over time and especially the 5-7 year time horizon, that will happen no doubt, but not immediately.

As for over capitalising, unless you are putting in Italian marble, the most expensive internal fittings etc, then I think you will be safe. The options that you mention in terms of updating/adding don't seem excessive.

 

[John Kimble]

Thankyou Buzz,

You have presented some very rational options but as we all know real estate / PPOR houses can be a very emotional thing!

You have helped to settle my thoughts and I agree with your comments below.

Yes lifestyle, proximity to work and possible schools (kids are on the radar in the not to distant future) will all come into it. We will be proceeding with the full blown renovation as a lifestyle choice first but the ability to recoup money spent when we sell in 5-7 years.

John Kimble

P.S Italian Marble, gold fittings etc won't be in consideration!

 

[melbmeg]

Just a thought...

Re the renovation, have you got quotes for what you are planning (not sure what you mean by "upstairs, downstairs, the works")? We thought a reno we are considering would cost around $200K but it's looking more like $300K (for adding about 35 square metres and redoing kitchen and two bathrooms). We are in inner Melb too (Bayside).

If I were you I'd do the full reno and enjoy it. Building costs are rising faster than interest rates, so if you think you'll want to do it at some point in future there's no real benefit in delaying it, from what I can gather. As PP said, overcapitalising in Richmond would be hard to do.