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Overcapitalizing

Discussion in 'Real Estate' started by Jacque, 5th Dec, 2006.

  1. Jacque

    Jacque Team InvestEd

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    We've all heard the term and understand what it means. Basically, try to avoid spending too much on the wrong improvements on your property as there's a strong likelihood that you aren't going to get back. Yes, yes, yes we all knowingly nod. It's easy enough, or so we think, to avoid overcapitalizing on property, especially when it's an IP.

    The travesties are largely committed, however, on PPOR's, and it's only upon reflection of so many startling examples that I've had the pleasure of recently viewing that I've had time to ponder this. Australians are so very protective of our Great Aussie Dream- we save for it, slave for it, reno it to the nth degree, furnish it with love and care, make it our own little castle (or shack, according to which part of the country you may reside) and become so amalgamated with it that most of us end up with highly individual homes.

    Is this a bad thing? Not necessarily so, but the pain comes when it's time to upgrade or sell and the buyers don't agree with our lime green feature wall in the bathroom or the 6m wide water feature that takes up most of the backyard. The trouble is that whilst commonsense dictates that we pitch our homes to the majority of purchasers who are most likely to want our home- there are many of us who simply have lost touch and don't know what that actually entails. Especially when you've been living in a home for a long period of time (and I'm approaching my record with the current home at almost 8 yrs) it becomes very difficult to remain objective about your own abode and ascertain what needs to be done. The decor we live with becomes almost invisible to us, as we see it so often and not with a fresh eye.

    Even more disturbing, however, is the vendor who has gone and invested large sums of money into items that he/she likes but the buyers may well shun, such as expensive red and black striped bathroom tiles, horrendously large spa baths with gold taps or canary yellow poly kitchen cupboards (and believe me, they were so bright, I thought about wearing my sunnies!). Taste may be very individual, but there are enough inoffensive fittings and fixtures out there that appeal to the wide majority of people, that it seems wise to at least invest in the cost of an interior designer opinion if you're considering selling and feel you need an objective point of view.

    The worst overcapitalizing example I saw was an over the top bathroom in a small postwar house in Brissy some yrs ago. Whilst the rest of the house was keeping in with the theme of simple and classic, the bathroom renovation plan obviously had gone ga-ga. The tiles were a very expensive Spanish style- bright orange and blue, and the enormous spa bath (which fit because half a bedroom next door was sacrificed to do so) was raised off the floor and a real eyesore. Naturally, the owners were proud of their only renovated room (thank God they didn't touch the rest of the house!) but I cringed at the thought of bathing in all that colour. It was truly awful- a reno that cost a bomb but in the end, I felt, actually devalued the house.

    So, for those of you considering adding something new to your prized possession before you next sell, get a few opinions from trusted friends or colleagues prior to launching into it. It may just save you from overcapitalizing :)
     
  2. ramone_johnny

    ramone_johnny Well-Known Member

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    Oops! Im guilty of this - over budget by $10,000, but still confident I can make a profit :)

    RJ
     
  3. MrDarcy

    MrDarcy Well-Known Member

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    With current my home being my first PPOR, I feel the need all the time to make it better, and probably overcapitalise.

    But the property investor/developer side takes over and although I'm spending money on renos, my rule is that for each $1 I spend, the house has to be worth at least $2 more. Obviously I can't know for sure it is, but it makes me do renos to a tight budget and consider the value of the renos not just the result.

    And I'm also thinking of removing a wall to install the bath :eek:
     
  4. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Jacque,

    We built our PPOR so had the final say on all the fitout. In fact, we only got it built to clock-up by a professional builder then took over from there and finished it ourselves as owner-builders.

    By doing so we managed to get it to completion for the same budget the builder quoted, but to a much higher level of finish. It took a lot of our own elbow grease but it paid off. We got hardwood timber floors throughout, with woollen carpet in the bedrooms. The bathroom has a spa bath and a spa shower, the shower alone cost $5K but its a magnificent addition from Kohler.

    We tried to keep the design clean and used bakers white for all the walls and a white kitchen and bathroom. Virtually no colour anywhere except for that we hang on the walls or put up as curtains.

    We love the place and an REA that visited some time back said that it was very sellable as a result of our simple clean colour scheme.

    My point, if there is one to this ramble, is that you can do things yourself and make a big difference in the quality/cost equation if you follow some simple rules about matching the style of the house and keeping the design appropriate.

    Cheers,
    Michael.
     
  5. Jacque

    Jacque Team InvestEd

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    Hehe! Well, maybe your place is different and you don't have to sacrifice a bedroom to get that mega spa bath in ;)
    Good luck with the renovating!
     
  6. MrDarcy

    MrDarcy Well-Known Member

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    No the bedroom stays, just the bath won't get in the house without removing part of the outside wall. Not too hard to do as the wall is an enclosed balancy and the windows can be removed and re-installed.
     
  7. Rick

    Rick Well-Known Member

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    QLD
    I constantly think about overcapitalizing as we are in the middle of a fairly big renovation on our PPOR. Particularly with the building costs being so expensive at the moment - you don't have to do much to spend a small fortune.

    One of the reasons we picked up our place so cheaply was because of overcapitalization by the previous owners. Over about 9 months they had to drop their price by 27%. The current state of the market at that time didn't help them.

    We are concentrating on liveability rather then decour in which case our tastes are fairly moderate. Can't imagine us ending up with any of the features like Jacque mentions. :p

    We plan to be living here for quite some time so hopefully the time factor will allow the value to overtake the cost of the improvements.