Overcapitalising is a big concern when it comes to home renovation. It has marred our appetite for renovation at times, and at other times, it has completely derailed us from the road of profits when it is time to sell these homes. This is probably why you need to know just the right amount of money you must spend on home renovations.
Of course, the only exception to the rule is when you do not have a resale in mind and can afford to splurge on your every whim and fancy (but then, why not buy a castle in the first place?)
How much should you ideally spend on home renovation?
Let us get into the question of “the right amount” straight. When you renovate a room, do not spend more than what its share as a percentage of the total house value is. For instance, you can find out how much the price of your bedroom or kitchen (in segregation) may be if the price of your whole house is $600,000. Now, if your kitchen is worth 12% the entire house value, you must not spend more than 12% of the renovation cost on it.
Breaking down room values
Taking generally accepted numbers, kitchens are accorded 10%-15% of the house value; whereas bathroom, a meagre 5%; master bedrooms, about 10%; and attics and basements (when finished), about 10% to 15% of the entire house value.
Structural renovations over cosmetic ones
Even while making renovations, it is wise to rectify the structural deficits first, and then come to the cosmetic loopholes. No matter how badly you want to lay that swimming pool in your backyard, it may prove a better idea to go for an extra bedroom.
If you think otherwise, read into the surveys conducted on the Melburnians and Sydneysiders. Prospective homeowners look for structural modifications more than the cosmetic ones.
Have you ever erred and overcapitalised on home renovation?