A guide on how to avoid overcapitalising on your investment property

Start by establishing an accurate value of your property. Research recent sales in your area to find out exactly what comparable properties have sold - those that are renovated and those that are not. This will give you a picture of the pricing in your area and highlight potential opportunities. 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.

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 could 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. 

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.

If your research stacks up and you’re ready to start improvements to your investment property, you might want 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 your home loan.

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