Wednesday, December 19, 2018

renovations

You have been dreaming of that new kitchen and dining room for as long as you can remember, and now the time has come to put your plans into motion. But do you really have the budget to afford the works? Here are a few things to think about before making the leap from your Pinterest board to blueprints. 

Work out your budget

Before you look at borrowing any money, you first need to work out how much your renovation will cost. Ask an architect to send you their comprehensive guide to costing a renovation. 

Before you finalise your plans, you can arrange for a building inspector to help identify any structural work that might be needed. Major work could significantly increase your budget, so it may be worthwhile to talk directly to a professional to get a more tailored understanding of how much you are up for. Architects and master builders are usually happy to provide a quote, so think about getting more than one quote to give you an idea of the range. 

In addition, add a percentage of contingencies: most experts recommend that you add another 10% to 20% to the overall budget to cover the inevitable delays and complications that arise throughout the renovation process. 

Once you know what the costs may be, you can start to think about how to raise the case. Of course, in an ideal world you will have saved up at least part of the amount beforehand, but renovations can run into the tens or even hundreds of thousands, so most people need to borrow some money. 

Unlock your equity

If you have been in your home for a while, chances are that you have considerable equity, both as a result of paying off your initial home loan and from rising property values. 

Equity is the amount of your home that you own; that is, the value of your property, less the outstanding loan amount. For example, if your property is valued at $500,000 and you owe $300,000 on your loan, your equity is $200,000 ($500,000 - $300,000 = $200,000). 

As long as you can meet the repayments and the renovations are likely to add value to your property, most lenders should be willing to lend you a percentage of your equity for home renovations. Depending on your situation, this equity could be accessed through redrawing, increasing your existing loan or refinancing your loan entirely. A mortgage broker will be able to advise on the best option for you.

Building loans

Most home loan providers will offer a product called a building or construction loan, which acts as a line of credit that you can draw on as renovation costs become due. The advantage of these are that you are not making repayments on the full value of the loan at once, but only on the progressive loan balance, which will change over time. That means you can start to pay off the first invoice before the next one comes in, saving you money overall. 

Your broker can assist in checking with your home loan provider whether the loan is 'interest only' for an initial period. It if it, this will also help to keep your costs down during the crucial building period. If the provider does not have a specific building loan, they may let you have a general line of credit, which functions similarly. Once the renovations are finished, the loan or line of credit can even be rolled into your home loan. 

Personal loans

Especially where a renovation is small - perhaps you just want to update your kitchen without any building works - you might consider a personal loan. As personal loans are generally not secured against your property, the interest rates are usually higher. However, as the term of the loan is much shorter, you should pay less interest over time. 

Each option has advantages, so it is worth spending some time considering them carefully. Remember, your mortgage broker can always help you with any questions you might have. 

strata

You can see it now. In the Great Australian Dream, it is that made-just-for-you house on a quarter-acre block, with the security and success that comes with it. In the Kiwi Dream, it is much the same house with the same sense of triumph and independence. 

There is only one problem. It is getting out of reach. 

In both countries, as housing has become less affordable, strata living has taken off. Rather than leaning over the back fence to chat with your neighbour, you are now much more likely to hear them crashing against your bedroom wall or gifting you the pitter patter of little feet across the ceiling. 

A recent survey of strata in Australia found there are almost 2.6 million strata lots and 2.2 million apartment dwellers, out of a population of nearly 24 million. In 2015, according to the Australian Bureau of Statistics, we began building more attached than detached properties for the first time. 

The chances are, many property purchases of the future will be strata. Why not do it smarter?

Know the neighbourhood

The location, location, location mantra applies to strata as much as other property. Think proximity to transport and schools and other local amenities. While you may plan to live in your new buy, there is an increased chance you may need to upgrade or turn it into a rental at a not-too-much-later date and you will want to ensure the capital growth potential, rental yield and potential tenants are what you are after. Also, consider who your neighbours will be. What is the proportion of owner-occupiers to tenants in the property? Is it close to a university or crammed full of loud, partying students? Your neighbours will be a lot closer, so best to get to know them before you buy. 

Count the cost

Strata properties involve ongoing costs in the form of strata levies, so it is best to budget for them before you buy. Designed to cover the upkeep of common property and essentials like strata insurance, strata fees vary considerably depending on the age and type of property you are buying, even in the same area. For example, properties with facilities like lifts and pools may set you back more than older properties where you need to take the stairs. Balance these costs with the appetite for investing in regular property upkeep - deteriorating or dirty common areas are a sign strata levies are falling behind, and this may not be an ideal for living, or a future sale. 

Known the rules

What do your strata bylaws say about what you can and can't do once you move in? Many strata properties have prescriptive rules that prohibit certain activities or improvements. Do you like pets? Check if you're strata rules let you own something bigger than a goldfish. Want to dry your clothes on that lovely sunny balcony? Think again if your bylaws require you to hand your undies next to someone else's. Keen to stand out by hanging blinds that suit your unique taste? I just hope your strata has not decided you need to hang blinds the same very plain colour as everyone else's. 

Read the report

The strata report will be one of the most important documents you will encounter when buying a strata property. Take your time and read it - carefully. In its many revealing pages, you will find key details of the strata property you are investing in like the strata levies, minutes of recent strata meetings and AGMs, as well as the details of any serious red flags that would make you turn and run as fast as you can. For example, watch out for special levies on lot owners for the repair of serious building defects, or a sinking fund that looks more 'sunk' than afloat. While a good conveyancer should point out problems, don't rely on their enthusiasm. Read it yourself!

Settle in, but stay serious

Strata living is a community endeavour, as much as it is about living between your four walls. The fortunes of your property will be governed by a strata committee and the community of owners (sometimes investors), and it will be the decisions of that committee that will determine both your happiness, and the fortunes of your lot. So, stay serious. For instance, how willing is your strata committee to keep common area of your property refreshed? Also, keep in mind the strata insurance you pay for in your strata levies won't cover your home's contents - you will need a good contents insurance policy to ensure you are covered in the event dreams turn to disaster. 

What are you waiting for?

Strata living is the reality for an increasing number of Australians and New Zealanders, and there is nothing wrong with trading the traditional dream of home ownership for something more pragmatic. As long as you do strata a little smarter, you will be on the housing ladder with no need to look back.

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Contact Details

Zippy Finance 

PO Box 3078
North Turramurra
NSW 2074

T 1300 855 022 

Louisa Sanghera is a credit representative (437236) of BLSSA Pty Ltd ACN 117 651 760.  Australian Credit Licence 391237. ABN 85 168 278 975.

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