Under or overcapitalisation: keep your timeline in mind
Under or overcapitalisation is an important consideration for both new home builders and renovators alike. Spend too much and you might never make that extra money back. Spend too little and you could cost yourself tens of thousands of dollars in the long run.
To better understand this, consider these two examples:
- Bill & Jenny build a home in a new estate situated near a school with plenty of parks and playgrounds nearby. They opt to save some money on the cost of building by going with a smallish 3 bedroom home. The market rises and they go to sell, however they soon discover that people looking at properties in their estate are only interested in 4 bedroom properties and they struggle to attract a buyer, eventually selling their property for considerably less than they had hoped for. Unfortunately in their attempt to save money they undercapitalised.
- Tina and Phil however have bought in the same estate, but they have gone the other way. They spare no expense building a massive 6 bedroom home with study and home theatre. They purchase the highest-quality fittings at considerable expense, but there is no doubt that their home is magnificent. However, when they go to sell they discover that their property is out of the price range of the people that want to move into that area. And those that can afford their home don’t want to live in that suburb. They have overcapitalised and will not get anywhere near what they originally spent on their home when they sell.
So what is the answer? How do you avoid these pitfalls?
Well it all really comes down to your timeline. And by that I mean, how long you intend to live in your home. For example, if you build a new home now that you are reasonably sure that you’re going to stay in for the next 10 to 20 years, then chances are if you have overcapitalised a little it won’t be a big deal. The market will have caught up with you in that time. In fact, you’re probably better off to have spent a little more than a little less.
However, if you only intend to stay in your home for 5 years or less, then you really need to approach things more cautiously – and this is where professional advice is important.
We have the skills and the experience to give you very sound advice on your level of investment. For example, regional areas tend to be considerably more sensitive to under or overcapitalisation than metropolitan areas; however having said that, there can be a significant difference from suburb to suburb. Fortunately, we have the knowledge of which suburbs will suit you and your plans best.
But it’s not just about location and the amount that you invest. It’s also about where you invest the money in your project. For example, if you spend extra on an outdoor living environment in South East Queensland, chances are this won’t represent overcapitalisation as these additions are valued and buyers are willing to pay for them.
At dion seminara architecture we are acutely aware of what potentially constitutes an under or overcapitalisation in a property and can advise you accordingly. We have an intimate knowledge of materials and construction in addition to market trends which can help to ensure that your building or renovating project avoids the pitfalls of investing too much or too little in the wrong areas.
So if you want to avoid the risks of over or under capitalisation call us today to discuss your project needs.