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Am I over capitalising if I do renovations to my property?

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Spending too much on renovation carries the risk that you’ll never recoup these costs when you decide it is time to sell.  One way to avoid over-capitalising is by calculating your costs backwards. First research what sale price you think you could achieve by looking at the sale prices of other similar sized renovated homes in your area. Then work out the maximum you can spend to ensure you do not over capitalise. It is quite often important to ensure you get the experts involved as well if you want to ensure you get it right by at least enlisting some help from maybe a local Real Estate agent or even paying for a formal valuation up front to get an expert opinion on the value the works will add to your property.

From a lending point of view we need to ensure that you will retain enough equity in the property that is an acceptable lending level to a lender. For a simple example if you already owed $100,000 against your property valued at $150,000 and you wanted to borrow an additional $100,000 to complete works that only increased you property value to $200,000 we would end up in an unacceptable situation of owing as much as you house is worth.

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