Upsize or renovate – what do you need to know?
If you’ve outgrown your current property you have two options – upsize or renovate. Here are some pointers to help you decide which way is for you.
16 October 2017
With property prices in some Australian cities at record highs – the cost of selling and re-buying has increased significantly. This has led some Australian property owners to consider upsizing or renovating though both have their challenges.
If you’re in the hunt for a new property and are not sure if upsizing or renovating is right for you, here are a few things to consider.
Understand how much it will cost
While selling your property to buy a dream home is exciting, it’s important you understand how much it could cost. With property prices at record levels, agency fees, which are calculated as a percentage of the price you sell, and stamp duty, which is calculated as a percentage of the price you buy, can really add up.
As an example, the below table shows how much it would cost to sell an average priced dwelling in each state, and then upsize to a dream home worth $200,000 more. This is based on each state’s stamp duty rate and the average agency commission. When you add in legal fees, marketing, building inspections and moving – you start to see the costs involved. Upsizing is achievable with hundreds of thousands of houses bought and sold each year. What is important is that before you start looking, you work out your budget.
Buy first, sell first or apply for bridging finance?
Once you’ve decided that upsizing is the best option, the next big decision will be how to best time the sale of your existing property and the purchase of your new one. Selling your property first can be risky particularly if the market is heated, as you could find yourself shut out. Buying your new home on the condition of selling your old property has its risks too, especially if you don’t sell your property for the price you thought you would. Some upgraders choose to apply for bridging finance. This involves holding both properties at the same time so can be expensive particularly if both have mortgages. Make sure you get good advice early from an LNS Adviser here.
How do you finance it?
If the cost of upsizing has put you off, maybe renovating your current property will give you the space or refresh you need. The best way to fund a renovation project will largely depend on the scale of the project. For relatively minor renovations that avoid major structural changes, the following options might be considered:
1. Draw down on your existing mortgage or refinance.
For those that have enough equity built up in their property and a redraw facility, you may be able to draw down the required funds. If no redraw facility is available, then you may want to consider either approaching your existing lender for a top-up on your current loan or refinancing to release the funds needed to cover the cost of any renovation plans.
2. Use an unsecured personal loan.
Another popular option is to apply for a personal loan. Personal loans typically start from as low as $5,000 and can have competitive interest rates as low as 7.99 per cent. As personal loans come with a shorter fixed term (typically 1-7 years), despite the higher interest rate, the benefit is that the debt will be paid off much faster than if you top up your home loan and pay it off over a 25 year period. To learn more about Liberty’s flexible personal loan products click here.
If you are contemplating more significant renovations that require structural changes to the property, most lenders will require you to have a fixed price building contract before they will lend for this purpose. The lender will then set up a construction loan, ensuring the builder is only paid when work completed has been verified at regular stages by a qualified valuer.
Good renovations start with detailed plans
The key to successful renovating is having a clear and concise plan in place from the start. Not only will this mean the renovation runs to schedule, but it will help you avoid budget blowouts. A part of the planning process should be obtaining pre-approval for any finance you need.
Make sure you talk to a broker
Regardless of if you want to upsize, or renovate, the best place to start is by talking to an LNS adviser. They will be able to help you better understand the costs of upsizing and advise upon solutions to fund your renovations. Reach out to your nearest LNS adviser here.
*Data in table sourced from 2017 Australian Bureau of Statistics median dwelling figures and Local Agent Finder data on average real estate commissions from 2015.