Which renovations deliver the best returns?

But it’s not just home owners looking to improve their personal abode that are putting their hard hats on.

“More people are also buying homes for renovation purposes and especially investors who are seeking to boost rental returns by upgrading old homes during a time of a shortage of rental properties throughout Australia,” Mr McQuillan stated.  

The latest national homebuilding approval figures show that Australians spent just over $3 billion on home renovations during the three months to June. 

This growing renovation trend is underlined by the fact that Australians were spending on average around $700 million per month in 2019 on home renovations, whereas they are now spending $1 billion per month, according to Mr McQuillan. 

And with Australians effectively spending over $250 million each week on home renovations, Mr McQuillan underlined it is “critical” for investors not to overcapitalise. 

He pointed out that while capital investment in some renovations translates into corresponding capital value increases on the property, others are not equating to a corresponding increase in home value.

He added that new investors are the ones who usually make this costly error. “Many first-time investors make the mistake of becoming emotionally attached to their properties and spend money that will not add any additional value to the property,” he said. 

Based on the selling prices of many properties, Nu Wealth discovered that a recovery percentage could be estimated for each renovation project. 

However, Nu Wealth clarified that returns could also vary depending on several factors, including the location of the property, the quality of the renovations, as well as the capital value and the type of property that are in highest demand in the area. 

Mr McQuillan added: “[Not] all home renovations deliver high financial returns and property investors should research carefully before undertaking a major renovation.”

Before you rush to the hardware store or contact your local tradespeople, Nu Wealth recommends choosing projects that deliver the biggest returns using the guide below: 

Kitchen renovations (60 per cent to 80 per cent return)

The majority of kitchen improvements usually offer high returns, with renovation projects in the area having an average recovery rate of around 60 per cent to 80 per cent, according to Mr McQuillan. 

“The smaller your investment, the higher the potential for recovering costs,” he stated. 

If a property owner is looking for a higher resale value, he recommends avoiding budget-breaking extras such as state-of-the-art hob, oven or premium countertops.

For an easy and cost-efficient project, Mr McQuillan said that a new coat of paint could do wonders for a kitchen. 

“Fresh paint can take years off the perceived age of a kitchen. Select a light, neutral colour,” he said.

He added that it’s not always necessary to make big changes in order to make a good first impression and that sellers can focus on just highlighting the good points of the kitchen. “Buyers will pay special attention to cleanliness, layout and storage capacity. Emphasise spaciousness by keeping countertops clear and cupboards well managed,” he said.  

Solar panels (90 per cent to 100 per cent return)

Due to the energy savings they provide, solar panels are quickly becoming one of the most popular home upgrades among Aussies. 

Mr McQuillan said that with solar panels becoming an important selling point for potential buyers, adding one to your property will offer a 90 per cent to 100 average recovery rate. 

To support his claim, he cited a major study by the National Bureau of Research in the U.S., which found that home owners who install solar panels and then sell their property recoup 97 per cent of their investment plus energy savings. 

Bathroom renovation (60 per cent to 80 per cent return) 

For Mr McQuillan, renovating a main bathroom “makes sense”, as it offers 60 per cent to 80 per cent return on costs. 

But he highlighted that bathroom renovations don’t need to be extensive to be effective in boosting your rent or the property’s capital value. “If you are upgrading a bathroom, consider revamping it with two hand basins and a separate shower (very popular) and bath,” he said.

He also offered other cost-efficient ways to upgrade a bathroom, including painting, tiling walls and/or painting ceilings. “Use a one-colour scheme to make it easier for buyers to imagine their accessories,” he added. 

Adding a room (70 per cent to 90 per cent return)

While building a new room in your property can offer a solid 70 per cent to 90 per cent return, Mr McQuillan warned against overdeveloping for your suburb. 

“For example, adding a third bedroom will be more valuable than a fourth bedroom. However, you may require a study in place of the fourth bedroom,” he explained. 

Upgrading the master bedroom en suite (60 per cent to 80 per cent return)

Mr McQuillan advised property owners who want to create a “luxurious” master en suite to focus on the underutilised areas to maximise returns and to make the sale process easier. 

“It’s cheaper to modify underutilised areas than to add on because the roof, foundations and some walls are in place. But if you eliminate the third bedroom in the process, you may find it harder to sell your home. Try to find space elsewhere. You may even decide to build on,” he stated. 

Patio (65 per cent  to 75 per cent return)

With outside living areas a strong drawcard for buyers, Mr McQuillan said that ensuring privacy will make the patio more desirable.

“A small patio that replaces a crumbling concrete slab can make a positive impact on the sale of your home,” he added. 

Landscaping (75 per cent to 100 per cent return)

If you’re planning to sell soon, Mr McQuillan recommended taking on a planting project to improve the front of your home. 

But he cautioned property investors against overdone landscaping. “It is wise not to over-plant, as some buyers look at extensive planting as more work than pleasure.

“The garden should be easy to maintain and always appear neat from the roadside, as this is the first impression that homebuyers have of your home,” he said. 

Upgrading security (75 per cent to 100 per cent return)

With security becoming a top priority for many home buyers, Mr McQuillan suggested property owners invest in it. 

“Money spent to improve the security of a home will prove to be a major attraction to a large spectrum of homebuyers,” he said. 

Swimming pool (50 per cent return)

Mr McQuillan acknowledged that pools are generally added by families on property for lifestyle reasons. 

“However, when they sell their home, they will find that homebuyers are divided on the attraction of a pool, because a large number of people do not want to purchase a property with a swimming pool,” he stated.

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