Tips on how to avoid over & under capitalising when extending your home.
In our interview with property expert Sam Gamon, Sam shares his insights on how to maximise the value of your property, with case studies to illustrate what’s possible and how to avoid costly mistakes.
This is Part 1 of our Building Insights series on Home Improvements That Add The Most Value. Check out Parts 2 & 3 of this series for advice on how to maximise the value of your Renovations and what Special Features add value to your home.
Jeremy Gates: Hi. I’m Jeremy Gates, Managing Director of Gaia Construction. We are an award winning residential builder based in Elwood specialising in renovations and extensions. Today I will be discussing home improvements that add the most value and the risk of over capitalising with property expert, Sam Gamon. Sam is one of the directors of Chisholm and Gamon, Bayside’s number one estate agent and auctioneer extraordinaire. Thank you for joining us today, Sam.
Sam Gamon: Thanks Jeremy. Great pleasure to be here.
Jeremy Gates: If somebody wants to do a rear extension – add a new kitchen on the rear of the house, a large living / dining room, maybe an extra bathroom, they are probably looking at spending between $350,000 and $400,000.
That is probably going to be around 60 – 70 square metres of extra space. Can you put a figure on something like that or is it not so easy?
Sam Gamon: Well, a good case study would be I sold a property recently which is a fairly typical Edwardian semi-detached house in Elwood and it sold for around about $1.65 million. Depending on when you are watching this program, whether or not that is relevant, because in 12 months’ time we might be talking about a higher value, but for the purpose of the case study we sold that unrenovated one which was pretty much unliveable and we sold that for $1.65 million. The renovated version in the same street, I sold one for around about $2.3 million and another one for $2.5 million. They both went double storey largely because they were on a smaller footprint of land so they wanted to maximise that land value by going vertical and extending up. But you can see that there is a huge amount of value there. So to give you an example, I think if somebody was buying a two bedroom house, single level, in Bayside. Let’s say, hypothetically, they’re spending around $1.5 million, $1.5 million purchase price. If they were to turn that into a three bedroom, two bathrooms and add that 60 or 70 square metres at that rear that you are talking about, they are probably going to end up with a house that is worth $2 million or low $2+ million. So they are going to add value. Yes.
Jeremy Gates: And they could also put a first floor extension on as well, a first floor extension with an extra bedroom, living space, small deck area, extra bathroom; that would cost between $350,000 and $400,000. So that sounds like it’s a good payback.
Sam Gamon: Yes, that is a great payback because you look at those examples where they have gone to the second level; they have pushed themselves into the $2.3 million to $2.5 million category so you really are taking yourself into another spectrum. That is because once you go upstairs you are probably able to create an extra living area, an extra two bedrooms and an extra bathroom. And you probably see that fairly commonly in what you are building.
Jeremy Gates: Yes, and then it all comes down to what kind of staircase you put in and how you finish the property upstairs, I guess.
Sam Gamon: This is where people make the mistake with undercapitalising or overcapitalising. So in the undercapitalising, it is that they haven’t put enough money into their finishes. So in the Bayside suburbs that we deal in, we’re dealing with a high median price value. So the people that are coming in are generally time-poor but they are fairly affluent, they are successful and they don’t want to put the time into renovating but they are willing to pay good money and pay a premium for something that is right. So if you put the wrong finishes in there and you are trying to save costs by putting in eg laminate in the laundries when you should have stone. That is where you undercapitalise and that is the example of those two properties I was talking about before. They were basically the same footprint but there was a $200,000 difference in the sale price, and fundamentally, the mistakes were either they didn’t put enough money into the finishes or the design was wrong. In one instance the kitchen was too large and there wasn’t enough dining space. Had that kitchen been a metre smaller, it was a game changer. So we are talking about such small things making such a big difference.
Jeremy Gates: So it is important to find the right designer / architect obviously.
Sam Gamon: Yes, the right designer / architect.
Jeremy Gates: They should work with you as well.
Sam Gamon: Yes, we love to look over plans. We do it for a lot of our clients. That is part of our client-for-life philosophy. At the end of the day, if they do decide they are going to sell the property one day, we are their ambassador. So we want to be there saying, “Hey, people are saying great things about this and we are really glad that you took our advice. You made the powder room a bit smaller and the living area a bit bigger or you went that extra metre in the living zone and that extra metre wider.” All of those things count.
Jeremy Gates: And obviously finding the right builder who specialises in that kind of work.
Sam Gamon: Yes, absolutely, the right builder. People ask me, “who is the builder?” and they want to see examples of their work. So for me to be able to point out and say, “Jeremy has done these four renovations in Elwood” – which is my core suburb – and those clients are raving fans which they all have been and that has been one of the great things because Elwood is such a small community and you run in to the clients that you sell properties to and they come back and say, “Jeremy did a great job”. It makes a big difference. But when you go to sell the property as well, people often walk through the door and say, “who was the builder?” They want to know. It is part of a quality story but also part of a brand story so that is where you add value. The benefit of renovating is that you get to do it the way you want it. You are not buying someone else’s taste. You’re not buying someone else’s dream; it’s your dream.
I suppose the big thing that most of my clients want to know is how long does the process take and what is a typical timeframe for you to build a renovation?
Jeremy Gates: From a design perspective if you need planning permission, from meeting us to starting building is a 12 month process. If your block doesn’t need planning permission, we can probably get you to building within 6 months. And then the average build time for a first floor extension is 6 to 7 months work; single storey extension 5 to 7 months work; full house renovation and first floor extension, 10 – 13 months work depending on when we start work and what you’re doing.
Sam Gamon: So the actual build timeframes, it’s pretty reasonable, isn’t it?
Jeremy Gates: Yes.
Sam Gamon: Once you get started it is just getting through the planning process.
Jeremy Gates: Yes, you don’t have control over that. You don’t have control over your neighbours. It also can make a difference when you start work. You don’t want to be starting your ground works in the middle of autumn or winter because it takes longer to get out the ground. Starting ground works in October/November/December all the way through to February/March; that is a good time. You are out of the ground, you don’t lose much time to weather. There is obviously a break at Christmas when you’re going to lose a bit of time. We generally work all the way through. We don’t take much time off but some builders might take a month off. These are things that you have to consider when you are looking for your builder because you are obviously renting for a bit longer as well then.
Sam Gamon: Yes, absolutely.
Jeremy Gates: Thank you very much for that. That is a wealth of information for our audience. I am Jeremy Gates from Gaia Construction. I hope that was useful for you and if you are looking for a builder to work with, please give us a call.
If you are thinking about building, renovating or extending, we have prepared a FREE guide to help you get started – 7 Things You Must Know Before Designing a New Home. Download it now to learn how to save time & money and ensure that you are on track to your perfect home.