Renovate Your Property Without Overcapitalizing

September 20, 2011

Renovate to Sell

Most property owners like to renovate their property with the idea of making it look better, upgrade it and eventually yield higher returns on the investment made. However, it is easy to get carried away and overcapitalize on renovation. This means spending too much on it, the amount being spent being more than the returns received in terms of sale price. Renovation must always be done within limits with the expected returns being higher than the expenses incurred. The risk of overcapitalization has also increased due to rising costs and lower rate of appreciation in property prices.

It is indeed possible to renovate without overcapitalizing by keeping mind the following factors:

  • The essential repairs required
  • Using quality products that are long lasting though they may not have the best finish
  • Thinking of the longevity of the property more than a sleek, delicate appearance
  • Keeping labor costs low by having a fixed time duration for renovating

How to avoid overcapitalizing

Whether a property is being renovation for staying oneself or for selling it, the rules remain the same, where overcapitalization is concerned.

  • Spend less on cosmetic renovations- property owners often need to make cosmetic changes to enhance the outer appearance of the property. This can be done at a lesser expense by not using top-of-the-line products and opting for the latest shades. Following the golden mean by striking a balance between quality and price is a good way to accomplish the renovation task.
  • Make a budget and stick to it- It is easy to see cost overruns and budgetary excesses when the cost of renovation exceeds the budget planned for it. As a rule the entire renovation expense must not be more than 5-6% of the pre-renovation value of the property. Sticking to this limit may not be easy but it will help in avoiding overcapitalizing and will require discipline.
  • Plan on increasing longevity rather than providing top brands – The appeal and beauty of leading brands for fittings and fixtures is difficult to resist, but they only push owners more towards overcapitalizing than adding value or longevity to the property. These need to be avoided, and instead products of good quality should be used while renovating.
  • Focus on kitchens and bathrooms- Real estate experts are convinced that potential property buyers look most closely at kitchens and bathrooms, which can also be the deciding factor in making a property buying decision. Here too the expense must be limited to providing fully functional and neat places more than designer tiles and fittings. Even for living oneself, these can be high expense areas if a tight rein is not kept on expenditure.
  • Keep the investment value in mind- Whether a property is for living oneself or for profit, renovations must always be done with the investment value in mind. This is one sure way to resist overcapitalization.

Overcapitalization can only lead to losses and limited gain beyond the joy of seeing expensive décor and interiors, and can hence be avoided to protect the investment value of the property.

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