Cracker renovations for a song, Makeovers can be a minefield

Building slumps come with silver linings.  Building materials are being discounted and tradespeople who once quoted outrageous prices have suddenly become affordable.

Ian Park, head of retail banking at ASB, says tradespeople are becoming more negotiable and it may also be easier to get their services in the slower economic environment.

Costs of jobs are dropping almost by the week.  Project manager Mark Trafford, who runs Maintain To Profit, says he get several calls a day from tradespeople looking for extra work.  Quotes and hourly rates have dropped significantly over the past six months.

The North Shore-based businessman and property investor, who employs contractors involved in 100 different trades, says the average rate has dropped from around $45 or $50 an hour to $30.

Few builders have the two years of work on the books that they had at the height of the boom, says the Master Builders Federation.  “Builders are getting smart,” a spokeswoman said.  That might mean erecting a sign board saying when they’re available “or by looking for contract work”

One Royal Oak homeowner, who had decided not to get her house painted 18 months ago after being quoted $12,000 to $15,000, has just had the job done for $5500 plus GST.

Despite headlines about mortgage funds being in tight supply, renovations are assessed on a case by case basis, says Park.

Stuart Wills, director of Mortgage Link West, adds: “If people have owned their own homes for two to three years, they probably have sufficient equity (to borrow against).  I have just done one with the National Bank and it was a piece of cake.  The borrower wanted $40,000 to do tidy-up work. He was self -employed, but could prove income and it went through on the same day.

“If you can keep (the borrowings) with the additional money under 80 per cent loan-to-value ratio banks will often lend the money, says Wills.

“They still look after existing clients.” Park adds: “If people are looking to stay in their homes for a few years, desire to invest further in the property, are confident of the renovations adding value and feel they will not over commit themselves with any additional debt, then this might be a good time to look into this.”

As with any capital project, assessment needs to be made of the ability to gain a return on that investment, whether this be from capital gain or rent, says Park.  That could include renting out a room in your home.

Investor Ron Hoy Fong, co-author of 1654 Ways You Can Get Massive Profits in Real Estate by Adding Value and Renovations, says this is the best time for renovations as the building industry moves into a decline.

Hoy Fong recently attended an economic forum where he heard warehouses around NZ were so full of stock that importing will decline because there are not enough consumers moving the stock.  He expects prices to begin dropping to cost plus 10 per cent or less after the Christmas/New Year period.

“However, cost of new goods imported will rise because of the fall of the New Zealand dollar against the US dollar.  I have noticed that the better tenants lately are the choosier with the condition of the property and they are prepared to pay the few dollars more for it.

Makeovers can be a minefield
We may dream of having a new kitchen or deck, but not all renovation work adds value.  Some can even detract from saleability.  For example, not everyone wants a swimming pool in their back garden.  To some, they signal work, expensive water bills, or a danger to young families.
Glenda Whitehead, Auckland manager of QV Valuations, says with the property values going down it’s unlikely that money spent on renovations in this market will lead to increased value.
“Well-presented, fresh-looking properties are selling.  By spending 10 grand more you can buy one that is already done up.”

Renovations more likely to recoup their costs:
• Adding bedrooms without extending.
• Painting the interior – but with the advice of a colour specialist.
• Insulation.
• Replacing cupboard doors, handles and benchtops in kitchens.
• Adding a deck.
• Removing an inside wall.
• Replacing windows with bi-fold doors to the outside.
• Removing old carpets and polishing floorboards.

Those that will end up costing you money:
• New Kitchen.
• New Bathroom.
• Anything out of keeping with the neighbourhood.
• Turning your house into the most expensive in your street.
• Adding a swimming pool.

Renovation plans for a rental property may be different to that for an owner-occupied property.
Investors are more likely to see a better return from simple makeovers, good choice of paint colours, and adding or moving internal walls to create more room.  In kitchens and bathrooms, investors such as Ron Hoy Fong work with existing cabinetry, adding new benchtops or tiles rather than starting from scratch.

 

Mark Trafford Director “Maintain To Profit”