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Which is more financially viable: relocate, renovate or rebuild?

  • Category: Home Loans, Commercial Property Loans

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Properties in Perth are entering prime renovation age and many homeowners with substantial equity are considering renovating to improve their lifestyle.

According to John Gelavis, WA’s executive director for Housing Industry of Australia (HIA), “alterations work should be substantially increasing as we get closer to 2020. This is because WA’s percentage of housing stock which falls within the ripe renovation age of 30 to 35 years old will be expanding,” (see page 57 of the Herron Todd White Residential report).

However, there are also the options of relocating and rebuilding which you may want to consider too.

How to figure out if renovating, relocating or rebuilding is more financially viable:

1. Relocation

According to the property clock, Perth is currently at the bottom of the market for housing and approaching bottom of the market for units. Rather than renovating, it might seem easier to just put your house on the market and move to a better house, but you need to consider:

  • Sale price of the current home,

  • Purchase price of the new home,

  • Stamp duty,

  • Legal fees and

  • Moving costs.

Taking these factors into account, you should be able to determine an estimated figure for what it would cost for you to relocate. If an improved lifestyle is your goal, would you be better off staying put and renovating or rebuilding?

2. Renovation

If you already enjoy the area, and the amenities of your current location, then renovating can be a viable way to increase equity.

Renovation is certainly top of mind for many Australian homeowners. As this Houzz Home Renovation Trends Study shows, renovation activity and spend is strong with 57% of homeowners in the study planning to renovate their home this year.

Most renovation activity in Perth is occurring in suburbs with median house prices over $650,000, occupied by families with two incomes.

To consider renovation costs, visit open homes with comparable renovations and see what kind of sale prices they are attaining. How keen are you on doing some minor work yourself (e.g. painting, landscaping, replacing blinds or curtains) to keep costs down?

To avoid having to rent, consider hiring a builder who employs non-disruption measures so you can stay in the house while the work is being done. This will save you having to spend extra money on a place to rent.

Read more about the factors to consider when renovating vs buying.

3. Rebuilding

Rebuilding (i.e knocking down the old house and building a new one on the same spot) is growing in popularity, especially in expensive cities like Sydney. It can solve a double dilemma if you don’t want to move, and you’ve outgrown your old house.

Knocking down and rebuilding will cost more than a renovation generally, though rebuilding on a square metre basis is much cheaper than renovating.

There are many costs involved in rebuilding, including the cost of alternate accommodation, and the cost of demolition. On the upside, you don’t have to look for suitable vacant land or pay stamp duty on a new house.

How to fund your relocation, renovation or rebuild

If you’re over 55, own your home and have a substantial amount of equity, consider using it to fund renovations, a rebuild or relocation costs.

The starting point is to determine what equity you have in your current property and what your maximum borrowing capacity is. Once you know how much you can afford to borrow you can then decide how extensive the renovation can be.

It’s important to talk to a financial advisor or lawyer before you start any proceedings to release equity, and talk to family members as your decision can impact them later.

Read more about calculating the equity from your property.

How home loan brokers in Perth can help

Home loan brokers can assist you when undertaking a relocation, renovation or rebuild.  

If the renovation work involves structural changes then the bank will want details, i.e. works contract and will probably want to control release of loan funds upon valuer confirmation that work is complete.

If the work is more 'cosmetic' and of a small amount (say <$100k) then your broker may be able to structure your finance without the need to have the bank involved in approving the works and requiring a contract.

A finance broker can also help arrange an assessment of the current value of your home and introduce you to a valuer who may be able to advise an indicative on completion valuation based on an overview of your proposed renovations.

Find out more about finance options for residential investment loans. A broker can help you understand your borrowing capacity for residential investment loans, structure the most suitable loan package and handle the application process to ensure a simple process and fast, effective outcome.

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