Tips on lending for construction and renovation
For families that are outgrowing their home, it often becomes a tough decision to choose whether to buy a new home or renovate.
Modern building practices are now making renovations more and more affordable and easier. Furthermore, there are some really effective ways to add value through simple additions to the home. The main issue to consider is whether the addition will add value to your home and whether the value increase will at least cover the cost of making the alterations. For insight into the kinds of additions that might add value… Just ask George.
Some of George’s valuation experiences
Over the years, I have come in contact with numerous owners who have sought to obtain top value for their home in order to invest in another property or refinance for other purposes. It has been critical that their properties are presented in the best possible way for valuation. A home in good clean order returns much more at the time of valuation. A little fresh paint and a pleasant odour certainly never go astray! Here are some examples of how I have helped my clients get their properties up to scratch.
TOM
Tom wanted to refinance to obtain the best possible interest rate at the time in order to convert his repayments to interest only, as the property was being rented in another state.
The owner knew the property was a little down on presentation and showed me some photographs. I knew in my mind that the property would not reach valuation unless there was considerable work done by the tenants. The garage was piled full of junk, the surrounds and presentation were terrible. The yard and gardens were indeed in need of a lot of attention. Photos of the interior were not available so I could only guess, but if the inside was like the outside, then what was the valuer to say? They can only value the property as it is at the time.
The client was hoping for an external valuation of the property to avoid looking at the interior, but the valuer did not oblige and proceeded to undergo a full inspection and valuation. Unfortunately, on inspection, the property was valued at $50,000.00 less than expected!
The tenants were asked to rectify the property, which they did, as there was no threat to their continued tenancy.
In this case the valuer would not revalue the property, so we had to submit the application to another lender and this simply eats up time and blows out deadlines. After a bit of elbow grease, the property did receive a better valuation by some $30,000.00. It was sufficient for the applicant to achieve his goals but the extra would have made life a little more comfortable.
ALEX
The second instance was a really nice home in a good suburb and the property was up for sale. It had beautiful gardens, and although it was on a main road through the suburbs, I suggest the reason that it didn’t reach a satisfactory sale price was the state of the kitchen. It was old and outdated and really let the rest of the beautiful home down. A renovation loan would have helped to update the home and it would have added to its value.
BRYAN
The third is an absolute classic. This home needed total renovation. There was a large family living in a 4-bedroom home, and it needed to be refinanced in order to let this home and purchase a larger one. One of the car spaces had been converted to a bedroom and the inside needed to be totally repainted. Appliances and light fittings didn’t work and the yard was in desperate need of attention. I believe the home would have reached valuation the first time had the work been done. (It is extremely difficult to have a lender revalue a home if it doesn’t reach valuation the first time, and it is usually three months in between valuations.)
On this occasion, the owners had the two following weekends to rectify the major faults and have the home revalued. There was a small outlay for paint, carpets, curtains, light fittings, a new front door and other things, such as the replacement of door handles etc. For an outlay of under $10,000 dollars and a week of working solidly into the night, the property valued at $30,000.00 above the original valuation!
The time to have considered this was well before the purchase of the new property. It is wise to consider the state of your property and seek advice from someone like Georgemortgages, who has considerable experience, before getting it valued. For more information… Just ask George.
10 great tips for putting value into your home with a renovation or building loan
1) First impressions last
The first thing a valuer sees is the outside of your home. You need to make sure the gardens are trimmed and the lawn is neatly manicured with some liquid garden fertiliser sprayed around with a hose (this alone can make a real difference in just a week or two).
Get fresh mulch and weed the garden, which isn't a huge cost and it gives a good first impression. You may want to replace the front door or add a fresh coat of paint to the existing door. Also, you can't overestimate the importance of neutral colours. If you choose to have the exterior repainted, you should make sure it's a neutral colour.
2) Success is in the details
The three most important areas in the home are the kitchen, bathrooms and the toilets. Check with recent interior decorating and design magazines and visit display homes to acquaint yourself with modern trends; it is likely that valuers and/or purchasers will be familiar with new trends, so any such improvements will likely add value. Home owners who undertake major bathroom-remodelling jobs often see up to 95% of their costs recouped!
Beyond major renovations, simply replacing towel racks, light fixtures or the sink can make a significant difference to potential buyers or increase rental value. If there is mould behind the silicone sealant in the bathroom and/or around the kitchen sink, remove the sealant and reseal the area. Ensure that toilets are spotless, and for thick rust stains in the bowl, get some Harpic Crystals from your local supermarket.
3) Refresh, refresh, refresh
The most important thing about the kitchen is that it is clean, tidy, reasonably up-to-date and in good repair. It is perhaps wise to replace the stove if it looks in any way off-colour. Ensure that it is suited to your style of home and that it doesn’t look tired or worn out. Is the colour new and inviting? Get lots of light in the kitchen!!!
Spend time researching modern trends and display homes. Always try to avoid anything that will date easily. Avoid clutter in the kitchen and keep it spacious. If, for example, your kitchen counter is full of appliances and knickknacks, you may choose to leave one or two appliances out, but the rest have to go. Kitchens and the bathrooms often sell the house. Structural problems could block a sale, but the kitchen and the bathrooms alone could sell it or obtain a higher valuation (which may also mean higher rental returns!).
4) Less clutter is better
A house shows much more potential and is more sellable if it has less “stuff”. Clutter is an easy thing to attack. The goal is to make the house look spacious, like a model home. The idea is to make the home as unemotional or personal as possible so that valuers can relate to space, and potential buyers/tenants can imagine themselves living there.
5) Cover the inches
A valuer or building inspector will spot the smallest discrepancies. When there is mould, mildew, leaks, stains or any evidence of dirt, these are recorded. When it comes to plumbing, unless you are somewhat of an expert, consult your plumber or handyman. Spending a few hundred dollars on a top-to-bottom cleaning is a small investment to make when thousands of dollars are at stake in the selling price. Also, a fresh paint job (with neutral colours) is almost a prerequisite to obtain the highest possible valuation.
6) Make sure you have the papers
When it comes to valuations, always ensure that all previous renovations and additions to the home are council approved. A valuer will undervalue a home if there is any hint that property doesn’t have council approval. Valuers are aware of building engineering, so don’t just leave it to chance that the valuer will overlook structural defaults.
7) Let there be light!
For the best valuation, areas that are well lit will add value. Research says that, in general, older people are more sensitive to glare than are younger people, and many people prefer indirect lighting to direct lighting. People often prefer lights to be tucked away, so the light source is masked. Nice warm colours are also appealing. Also advisable: on darker days, leave the lights on and the curtains open.
8) On the nose
You may love your dog, but that doesn't mean future owners need to be reminded of its presence. As a rule, I had a policy that pets were not allowed in my rental homes. I relate to experiences with family pets and other people’s pets. As much as we love our pets, and to us they’re not smelly, pet smells, cigarette smells and food smells tend to linger.
If, after a major cleaning and carpet washing, particular smells haven't been eliminated, spending a few thousand dollars on good quality replacement floor coverings will more than pay for itself in the sale price.
9) Looking up
The biggest concern for valuers is the roof. If your roof is 5 to 10 years old, you may be OK. But a roof that's 17+ years old may be a problem. If there are any deferred maintenance issues, buyers may run away – even if they love the house. The more problems the buyer finds, the more they are going to want to negotiate the price down.
Buyers and valuers tend to want two times the cost of the repair off the price. The more you do yourself, the more cost-effective it is for you. Wash down a tiled roof with a pressure spray and get a tiler in to repoint the roof if it is necessary. There is nothing better than a clean roof, and make sure there is no grass growing in the gutters!
10) Taste is personal
Any unique touches in your home (eg. a flaming red dining room, dark brown walls in your kitchen or turquoise or bright blue feature walls) may have been acceptable to you and your family, but future buyers, and particularly valuers, won’t see it that way. Unique or conspicuous items would also be best taken out of the house.
You may see how quickly the Reno Kings on TV sell houses. The reason is they are very unemotional about the home. They come in, paint the house neutral, do some landscaping and put it back on the market. It's just a product to them; if you’re serious about return on investment, then that’s what it needs to be for you too.
Following the market
Just like all of us, I was young once and possessed little knowledge of the cycle of housing and finance. Then, in my 50s, I chose to attend seminars and set the intention to learn as much as I could about it.
I purchased my first home in the outer suburbs and, believe me, in those days they were the outer suburbs! It was a butter box house on stilts. Great, it had room underneath for a workshop and a place to store my tools. In those days concreting was left up to the purchaser, and there were no such things as driveways and landscaping, which lenders insist on today. But the price was right ($10,000) and I could afford the repayments on my $90-a-week income.
I set about the task of excavating under the house and spent several weekends mixing and pouring concrete. I sold the property just on a year later at nearly double the price I had paid for it. I thought what a wonderful stroke of luck. But it wasn’t luck, it was the financial cycle, and I had struck it at the right time.
Some years later I purchased another home and this property didn’t return a great deal in profit – the purchase price was much higher. It wasn’t the right time.
The third property I bought was in an inner suburb, and I bought the worst house in the street for the privilege of living 14 minutes from the city. This was a wonderful house and many good times were had. Fortunately, I didn’t leave it long to place the home back on the market, and again I nearly doubled my investment in just over 12 months.
My experience has come from a lifetime of learning and watching the housing market rise over many years, and very often my thoughts are backed up by articles in newspapers, books and periodicals, and what now seems second nature to me. I realise that many people starting out don’t have this same intuition that I have acquired, so I hope that I can be of service to their journey on the property market.