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July 31, 2015

10 common ways to overcapitalise – and how to avoid it

Asbestos removal – Removing asbestos isn’t a cheap exercise because it involves a licensed specialist to remove it, plus the cost of hiring a bin, which can be $700 in one hit. Rather than removing the asbestos in intervals, or room by room as the house or unit is modified, what needs to be removed should be removed from the moment the property is purchased or prior to renovation. Also, when buying a house with an asbestos roof, you should question if it really needs to be touched or removed – often it doesn’t.

Raising a house – Before raising a house, investors should seriously consider what the end difference will be and if it will be worth it. Clarke says before you know it you’ll be paying $70,000 with just a slab in the ground and some pipes sticking out. “You should be thinking ‘what could I have done with that $70,000 instead?’”

Colour schemes – When renovating more than one property at a time, try to use the same colour schemes to maximise the economy of scale. “I use the same internal paints and three different paint schemes outside.”

Driveways – Do you need a big concrete driveway now or later? This often depends on the access to the property and the slope of the driveway entry. Perhaps concrete isn’t even necessary and another type of material will suffice. Or perhaps it can wait until further down the track.

Pools and landscaping – Rarely do you get your money back on a pool, only in specific locations where there’s a strong demand for them. Don’t go overboard with landscaping. Limit the grass areas and only plant natives.

Wear-and-tear carpet – Don’t buy plush carpets, instead buy a hardwearing one that won’t need to be replaced every six months.

Floating floors vs timber floors – Instead of timber floors, put floating floors in – they’re cheaper and can be repaired easily. If the floating floor is damaged all you have to do is take the skirting off and put a new piece in, like a jigsaw puzzle. Timber floors are another story.

Tiling the bathroom – Instead of tiling all the way up the bathroom walls, consider a splashback and only run the tiles to 150cm from the ground. David calls these “skirting tiles”.

Toilets – Some renovators think they need to pay more than $700 for a ceramic toilet but these days you can buy one for $350 due to large outlets like Bunnings offering more competitive prices. Plastic toilets are even less, at around $200.

Maintenance – Overcapitalising can happen over time if you don’t remain on top of your property maintenance. For example, instead of repainting the entire interior every three years or so, the cost will be far less if you touch up paint every year. “It’s more economical to spend $300 here and there – you might spend $1,000 each year – than, say $8,000 to $12,000 every three years for a professional painter and say $20,000 for the exterior.”

Clarke says this principle can apply to many aspects of the house and that when you’re replacing something you should “spend right” to avoid unnecessary maintenance in the future.

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