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Friday Feb 22, 2013

Should you renovate your property or buy a new home ?

"Once a bond is fully paid, the question often arises whether to buy a bigger, better home, or renovate the present one to suit your needs," says Lanice Steward, managing director of Knight Frank Anne Porter.

There are always hidden costs to moving house that subtract from your capital investment, she said. The transfer duty on the new home, agent's commission on the one sold, the move itself, transfers of phone and internet connection lines, new curtains and other incidentals, are all "sunk" costs - they do not add value to your assets, she said.

"Unless you are able to add a substantial amount of capital or qualify for a bigger bond you might be better off renovating your present home instead of buying a new one," said Steward.

This is assuming you have the space available to build an extension on the plot your existing home is on, but when renovating a home, one must be careful not to overcapitalise in certain areas. When the time comes to sell that home, you might not get the same value for your property.

Check the values of the current property, how much it will cost to add on to the home and compare these to similar homes in the area (ones that have been renovated or have similar numbers of rooms and features).

"If you can keep your present home to rent it out, and still afford to purchase another home that will meet your needs while obtaining the necessary finance, it is an excellent way to grow your property portfolio," she said.

It might be advisable in this case to take a bond on the first property to enjoy the tax benefits there. That bond interest could be offset against the rental income you will earn, reducing the tax paid. However, in order to be sure that this is the right thing for the buyer, he should consult a tax consultant to be sure of all the tax deductions or tax implications.

Anne Porter Knight Frank Press Release

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