How to avoid overcapitalising on your investment property

Couple renovating their property

Australians love renovating. We devour reality television shows and magazine spreads of lush interiors, and we make surplus trips to DIY shopping barns. However, when it comes to renovating our own property it's vital to avoid overcapitalising.

Whether it’s doing up an investment property or a house you’re getting ready to sell, making improvements that exceed the value of the property is referred to as overcapitalisation - and it’s a rookie error that you can avoid. Armed with the right research, you can make improvements to your property that can both maximise rental return as well as increase your property’s resale value. Budgeting is key to ensure you don't spend more than what your property is worth. 

Establish an accurate value of property

Research, research, research

Start by establishing an accurate value of your property. A reputable real estate agent will be able to help. Next, research recent sales in your area to find out exactly what comparable properties are selling for - those that are renovated and those that are not. This will give you a picture of the pricing disparity in your area. For example, if your property is valued at $300,000 and similar renovated properties are selling for around $450,000, this would suggest that spending more than $150,000 on your renovation could lead to overcapitalising on your home. 
Getting bang for your buck

Getting bang for your buck

Continue your research by finding out what types of features buyers are looking for and which types of properties are attracting a premium return. Is your property in a neighbourhood predominantly of families? If so, upgrading the kitchen or adding a second bathroom is likely to be more sought after than a high-tech wine cellar or four-car garage. 

Think about what will create a lasting impression on buyers. Quality floor coverings, neutral yet stylish kitchens and bathrooms are classic favourites. While big wow factors can help sell a home, also weigh up the costs from that impact. Is it worth spending the money to renovate the whole bathroom or should you just update some of the fittings? Thinking pragmatically about the investment property renovations and the returns you can expect can help you stay within budget. 

Budget carefully

Budget carefully

Property prices may be high now, but it’s always best to think conservatively when setting a budget because the market can change. Speak to friends and family who have renovated and get a clear picture of costs. Don’t forget to factor in the odd unexpected expense such as repairing a blocked drain. Think about setting up an emergency budget so you can better manage the unexpected. If it is an investment property, the building may be untenanted while you work on your investment property improvements, so you may not be receiving any rental income. Find out how to plan and budget for a renovation project.
Finance options

Finance options

If your research stacks up and you’re ready to start improvements to your investment property, you will need to consider the most effective way to finance your renovation project. If you need to borrow funds, it might be a good time to look at refinancing your current home or investment loan. Get up to speed on refinancing with Pepper Money. 

  
Smart renovating is one way you can unlock value in your property, just remember to renovate with your head, not your heart.

Apply for a Pepper Money Home Loan

Want to find out where you stand?

We've got the online tools and calculators to help get your home loan journey underway. Work out how much you may be able to borrow and even quickly find out what indicative interest rate you might be eligible for.
Let's Get Started

Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.

All applications are subject to credit assessment, eligibility criteria and lending limits. Terms, conditions, fees and charges apply. 

The results of the borrowing power calculator are based on information you have provided and is to be used as a guide only. The output of the calculator is subject to the assumptions provided in the calculator (see 'about this calculator') and are subject to change. It does not constitute a quote, pre-qualification, approval for credit or an offer for credit and you should not enter commitments based on it. The interest rates do not reflect true interest rates and the formula used for the purpose of calculating estimated borrowing power is based on the assumption that interest rates remain constant for the chosen loan term. Your borrowing power amount will be different if a full application is submitted and we complete responsible lending assessment. The results in the calculator do not take into account loan setup or establishment fees nor government, statutory or lenders fees, which may be applicable from time to time. Calculator by Widgetworks.

Pepper Money Personal Loans is a brand of Pepper Money Limited. Credit is provided by Now Finance Group Pty Ltd, Australian Credit Licence Number 425142 as agent for NF Finco 2 Pty Limited ACN 164 213 030. Personal information for Pepper Money Personal Loans is collected, used and disclosed in accordance with Pepper’s Privacy Policy & the credit provider’s Privacy Policy.

Pepper Money Limited ABN 55 094 317 665; AFSL 286655; Australian Credit Licence 286655 (“Pepper”). All rights reserved. Pepper is the servicer of home loans provided by Pepper Finance Corporation Limited ABN 51 094 317 647. Pepper Asset Finance Pty Limited ACN 165 183 317 Australian Credit Licence 458899 is the credit provider for asset finance loans.

Pepper and the Pepper Money logo are registered trademarks of Pepper Group Assets (Australia) Pty Limited and are used under licence.

Get in touch with a Lending Specialist

Tell us about your situation. The more we learn, the better we can help.