5 smart financial questions to ask before renovating

5 minutes

Your property is both your biggest financial investment and your greatest asset — so it pays to make sure it’s in great shape. Whether you’re looking to increase rental income or to increase your home’s value, renovations are a strategic move to help you achieve your financial goals.

From agent fees to stamp duty, there are significant costs in selling and buying that could deter you from renovating, however renovating your home could ultimately increase the value of your property. Before you seek an appraisal, see the five questions you should ask yourself when starting your home renovations.

1. What are My Property Goals?

It seems simple, but one of the most important things to determine before you begin the process of renovating is your goals. Is this an investment property or your future home? What does the future look like? Children? Plan ahead to get the most value and to help you budget appropriately.

The renovation plans of homeowners looking to extend their stay will differ from those looking to add value to an investment property before listing it for rent. While both may share the goal of long-term profit, renovating for immediate profit has its own set of rules.

If you’re renovating to delay or avoid moving, consider your renovations through a future lens. The work you complete now should still service your needs in a few years, which could mean a bedroom conversion or knocking down a wall to make the living space bigger.

That being said, not all renovation projects will be proactive. In some cases, you may need to invest in essential tasks, such as roof or structural repairs, to protect your biggest investment, your property.

2. Will Renovating Help to Add Value to My Home?

When done right, renovations should help to add value to your home.

If you’re approaching it with the explicit goal of flipping or renting a property, it’s important to look into maximising your return on investment (ROI). Look into cost-effective renovations that will help you achieve this goal first.

Weigh up whether the cost and time of renovating are worth your efforts. It may be worthwhile meeting with a real estate agent to determine which upgrades will most likely impact the value of your home. Cherie Barber, one of Australia’s leading renovation experts, suggests that you shouldn’t spend more than 10% of your property’s value on a cosmetic renovation if you’ll be renting or selling. She also says that you should aim for a $2 return on every dollar you spend, with painting offering the best ROI at $5 to $10.

3. What is My Budget?

Around 20% of renovators face budget-related issues, at least according to the 2021 AU Houzz & Home Renovation Trends Study.

So it’s important to be smart with your budget — especially when it comes to large-scale renovation work.

If you’re renovating your whole house, budget 8-10% of your property’s value before you start. Then, the hard part will be allocating the appropriate budget to the various renovation projects. An example of a budget plan is:

  • 20% of your budget for the bathroom
  • 20% for the landscaping/exterior
  • 30% for the kitchen
  • 10% as a buffer
  • 20% for everything else (or emergencies?)

Adjust the budget to align with your defined goals.

The Houzz Australia 2016 Houzz and Home Report revealed that homeowners spent between $21,840 to $31,000 on major kitchen renovations. On bathrooms, Australians are spending between $14,770 to $16,440 on major renovations.

4. How Will I Finance The Renovations?

Since money doesn’t grow on trees, be smart with your money and how you can save. Here are some tips for boosting your renovation budget.

4.1. Refinancing

Refinancing is a popular option when it comes to funding renovations. It’s simple — when you refinance your existing home loan, you can apply for extra funds to cover the renovation. But switching to a lower home loan rate has two-fold benefits. Not only is it a smart way to fund your renovation, but it’ll also help you save money on interest in the long run.

If you’re a homeowner with a $500,000, 30-year, 3.5% Owner Occupied P&I loan, refinancing with Nano could save you an incredible $143,865 over the life of your loan. Your monthly repayments would reduce by $400 and your loan length by six years and ten months¹. You’ll also enjoy instant access to funds in your offset sub-account through Nano Visa debit card, simplifying the renovation process.1

4.2. Offset sub-account and Vaults

To save up the money for renovations, it’s worthwhile being smart about where your savings should go. Nano can help you make the most out of your savings with an offset sub-account, where funds are used to offset the balance of your home loan and therefore how much interest you pay. The Nano offset sub-account carries absolutely no fees, even when it comes time to redraw.

4.3. Home loan top-up

A home loan top-up taps into the equity you have in your home. The idea is that your lender will revalue your property at a higher amount, allowing you to draw cash out to fund your renovation. There will generally be caps to how much you can withdraw, which is usually the difference between your current loan and the maximum LVR.

4.4. Personal loan

For those without enough equity, a personal loan for renovations is a common solution. They typically offer better interest rates than a credit card, and such is their appeal. However, often you might find that the interest rate for personal loans may be higher than your home loan. Before committing to a personal loan, be sure to check and compare the cost of each option, and have a plan in place to meet your repayments.

5. What Happens if I Run Out of Money?

If you’re halfway through a major home renovation and your fund runs dry, your first instinct may be to contact your lender and see if they’ll supplement your funds, but that may not always be a good option. Some lenders will be reluctant to lend you more money if you don’t have solid plans in play. If you can’t find the funds elsewhere, you’ll be forced to find your way out by selling, but given your half-renovated house, you probably won’t get the best price.

The simple way to avoid this worst-case scenario is by crunching the numbers well before you’ve started picking out new tiles. In this case, it literally pays to have the funds to see your renovations through, so create a budget and stick to it.

Nano also has a Vaults feature that allows you to tuck funds away as a contingency plan. As part of our offset sub-account, every dollar in Vaults goes toward reducing the interest on your home loan. Set aside a little extra — say 10% of your total renovation budget — in an ‘Emergency Renovation Funds’ vault for unforeseen expenses.

Are you ready to start renovating?

Here at Nano, we want to help you confidently see your renovations through. To find out how much you could borrow and save by refinancing with Nano, see our home loan calculator and then contact our friendly Customer Support team.


¹This calculation assumes $0 in your offset sub-account