Monday, December 21st, 2009
Over-Capitalising can be a risk for both investors and owner-occupiers.
While most investors have a good understanding of what over-capitalising is and how to avoid it, this is not always the case for owner-occupiers.
The definition of over-capitalising is spending money renovating your house that cannot be recouped through the increased value of your property.
This is less of an issue if you never have the intention of putting your property on the real estate market but if you do want to sell at a later date you need to think it through carefully.
It can be a particular issue if you are considering selling soon and are weighing up the value of a new kitchen or bathroom.
As a result when you are planning to renovate it is prudent to consult a real estate agent and architect or building designer.
In the first instance you need to consider how much your property is currently worth and how this compares to the median price in your area.
If you spend too much on your house you may put it out of reach of buyers in that area.
You also need to consider how your renovated property will fit into the area you live in as buyers are often attracted to a particular area because of a style of housing.
For instance larger two storey houses in new estates are not always the style of housing that people are looking for in the inner city.
Finally, if you are looking to sell and move in the shorter term it is important to consider if the cost of the renovations will be recouped by an increased property value. If they won’t be then it is not going to be worth the time, stress and cost of renovating.