How to add property value without over-capitalising

Injecting your own personality and style into your house can be one of the most rewarding parts of home-ownership and, when the time comes, a well-designed and maintained home is always easier to sell than an outdated one.
Unfortunately, renovations don’t always have a 1:1 effect on your resale value, so how do you know how much to invest in home improvements without risking overcapitalising?
According to Tony Clarke, managing director of the Rawson Property Group, the trick to minimising the risk of overcapitalising is more about fitting in than it is about standing out.
“The first thing to understand is that different areas tend to appeal to different market segments,” Clarke begins, “based on the typical characteristics of their properties. For example, suburbs with small houses and compact gardens or courtyards tend to appeal to young couples and families looking for starter homes, while suburbs with large houses on spacious grounds will appeal to more established families with older children. It’s important to know your neighbourhood’s characteristics and understand the kind of buyers it attracts, so you can ensure any renovations you do will fit in with their lifestyle requirements. If most houses around you are modest single storeys with two or three bedrooms, turning your home into a five bedroomed double storey is unlikely to pay off. Buyers wanting that kind of space aren’t going to be looking in a neighbourhood of small houses, and buyers looking for small houses aren’t going to pay a premium for extra rooms they don’t need.”
“By the same token,” Clarke adds, “if you’re the only house in the neighbourhood with fewer than five bedrooms, adding the additional space may well be an excellent opportunity to add value.”
Fitting in is also vital when it comes to price, and Clarke recommends doing plenty of research into the average selling prices in your area before you start renovation plans.
“Almost all areas have ceiling prices, a top limit above which properties are unlikely to sell,” he explains, “and it can get harder and harder to sell the closer to that limit you get. As a basic rule, if you’ll need to ask more than 15% to 20% above average in order to recover your investment when you sell, you might want to think very carefully about the extent of your improvements.”
Not all home improvements need to be high-cost, however, and Clarke notes that a simple coat of good quality paint and a garden clean-up can have a very positive effect on your resale value. Other relatively low-cost improvements with good returns include solar water heaters and heat pumps. “Anything that reduces future day-to-day costs for buyers is a good bet for adding value to your home,” he says. “This includes things like making sure all your existing structures, fittings and fixtures are in a good condition.”
For more extensive renovations, Clarke recommends prioritising the modernisation of kitchens and bathrooms, although he warns against going overboard with designer fittings unless that’s a common feature in your neighbourhood. When it comes to adding on rooms, he advises sticking to the rule of less is more. “A third bedroom is always more valuable than a fourth,” he says.
Above all, Clarke stresses the importance of looking before you leap when it comes to renovations. “If you want to avoid overcapitalising, you really need to be well-informed about what’s going on in the properties around you,” he says.
“Chatting to a good real estate agent in your neighbourhood can be invaluable, as can spending a few Sundays visiting show houses with similar features to your home. Take note of places where your house falls short and prioritise those for improvement, but make sure you stay within appropriate limits for your neighbourhood and its typical buyer.”