Note: We want to deliver an exceptional experience for our customers so we are only able to assist a limited number of people at a time.
Our renovation loans team is currently at maximum capacity so we are only able to assist with non-structural renovations at this time.
Are you looking to upgrade your home but unsure where to start? With so many options available, deciding whether to buy, build or renovate can be overwhelming.
In this ultimate guide, we’ll break down the pros and cons of each option to help you make an informed decision that fits your financial goals and budget. We’ll share some valuable insights and tips to help you confidently upgrade your home.
This article includes everything you need to know, including:
- Key drawbacks
- How to decide between buying, building or renovating
- Real-life case studies
- Advanced tips
- Lots more
So if you want to make the right decision for you and your family, this guide is for you.
Let’s jump right in.
Table of Contents
Case Study: Don’t do what I did
Figuring out the best way to upgrade your home can be tough. There are a lot of factors involved, and to be honest, it’s just as much of an emotional decision as it is a logical one.
So, how do you decide?
I’m a big believer in making smart financial decisions when it comes to your home, but I also strongly believe in making decisions that ensure you’ll be happy in the home that you live in.
There’s no point in renovating if you don’t like the house you live in or if the suburb has some major issues. On the flip side, there’s no point in moving home if you’re in love with your home and want to keep making beautiful memories there.
Learn from my mistakes…
Firstly, let me give you an example of what not to do.
The year is 2015. I just finished a gruelling, 12-month renovation on my property at the Gold Coast. I had the vision of turning my outdated house into a modern, open-plan home that would see me swimming in domestic bliss.
Unfortunately, my vision didn’t match reality. The renovation took twice as long as I expected and cost twice as much as I’d budgeted.
The extra cost and hard work would have been worth it if the end result was what I wanted.
But it wasn’t…
A few weeks after finishing the renovation, I was sitting with my wife in my new living room on a Sunday afternoon. It should have been a lovely evening, but I couldn’t stop thinking about everything I had done wrong during my renovation and what I could have done better.
I realised that even after all that time and effort, I wasn’t happy with the house.
I ended up selling that house within 12 months.
Even worse, I had overcapitalised! The cost of the renovation was more than the value it added to the home. All that time, money, effort and stress down the drain.
What did I do wrong?
I didn’t take enough time to plan out my upgrade. I jumped right into a renovation without considering my other options.
Learn from my mistakes. Take the time to think through all of your different upgrade options.
Should I Buy, Build, or Renovate?
Is your home starting to feel a little too small? You may have a new baby on the way, and all the bedrooms are full. Are there some minor flaws that are starting to really get on your nerves? Whatever the reason, it might be time to get an upgrade.
If you’re thinking about upgrading your home, you have four options:
- Renovate your home
- Buy a home
- Build a new home
- Knockdown/ Rebuild
These options all have pros and cons, and everyone has their own goals and purposes for upgrading their home.
Which one is best for you?
Let’s analyse the pros and cons of each of the 4 options…
1. Renovating Your Home
Renovating your home is usually the first thing that comes to mind when considering a home upgrade.
With a few years of property ownership under your belt, a bit of equity built up in your home, and maybe even a better financial situation, you start to notice the little flaws in your home that didn’t bother you when you first moved in.
If you are overall pretty happy with your home but want a few changes here and there, renovating can be a great way to upgrade.
Pros of renovating your home
- It can be cheaper than buying a home. There are a lot of hidden costs when you’re buying a home, and stamp duty is the highest cost of all. If you stay put and renovate instead, you can save tens of thousands of dollars on stamp duty, moving costs, and other fees.
- You can use your home equity to finance your renovation. If property values in your area have gone up and you’ve been diligently paying off your principal and interest – or even better yet, adding extra repayments – you might have some considerable equity built up in your home. You can access some of this money via a home equity loan or a line of credit to finance the cost of renovation. This means that you don’t need to have a lot of savings built up before you start the renovation process.
- You get to stay put. Do you love your suburb? Are the kids happy in school? Are you close to friends and family? Is the house full of treasured memories, and you’d like to keep on making more? Does the thought of moving home make you shudder? If so, then a renovation might be the right choice for you. Renovating your home means you get to stay where you are. You get to remake your home into your dream home without having to go anywhere.
- Most people are happy with their renovation. If you’re prepared to fork out the cash and do the work on your renovation, you’re probably going to be happy with the result. According to the Remodelling Impact Report by the National Association of Realtors, 84% of owners have a greater desire to be in their homes after remodelling, and 69% have increased enjoyment in their homes. These statistics show you have greater chances of being happy in your home after renovation.
- It can make your home more valuable. If you do eventually decide to sell your home, a well-done renovation can add significant value to your home. You get the benefits of enjoying the new kitchen, living room, bathroom, bedroom (or whatever you choose to upgrade) while living in the home. You can recoup most – if not all – of the costs of renovating when it comes time to sell. This is a win-win.
- You already know the property market in your area. I’m sure that, like everyone else, you want your house to go up in value. If you’ve been in your house for a few years, you should know the local property market well. This should make it easier to project what your house value will be like in the coming years. With renovating, you don’t have to start market research on another property.
Read More: Kitchen Renovation Guide.
Cons of renovating
- Overcapitalisation. This is a term you may have heard before, and it’s one of the biggest issues you might face when renovating. Overcapitalisation is when you improve the property beyond its resale value. In other words, if you spend too much on your renovation, you might be unable to recoup your investment costs when you sell. For example, if you spend $200,000 on home renovations but those renovations only add $100,000 to the value of your property, you have overcapitalised by $100,000.This is especially a big risk when you’re considering a major structural renovation, and it’s why we recommend that you plan on staying in your house for at least five years before considering doing any major building work.
- It can get complicated. Renovations are time-consuming, messy, and disruptive. You might need to rent for a few months (or, if you’re unlucky, many months) while waiting for major structural work to be completed. Your renovation can also be delayed due to material shortages and contractor delays. In the worst-case scenario, your builder might go out of business halfway through the process – this can put you in a very messy situation.
- Renovations always cost more than you think. It’s rare for a renovation to actually meet its budget. If you haven’t allocated a large enough buffer for your renovation, you might end up in a stressful situation where your reno isn’t complete, but you’ve run out of money. You need to be crystal clear with your builder about what you want, and always make sure to budget at least an extra 15% for unexpected costs. This is why you should speak with your Mortgage Broker to make sure you can afford any cost blowouts should you need to borrow a little more from the bank.
- Renovations have their limits. Depending on your house or apartment, land block, and council regulations, your ability to upgrade your home could be limited. Smaller houses and apartments give you fewer options for renovation. You may find that your current property simply can’t accommodate the changes you would like to make.
- Are you prepared to live on a construction site? Remember that whatever room or rooms you plan to renovate will be out of commission while the renos are underway. This can be a major disruption to your daily life. During the renovation, your house will be noisy and dusty, and there will be strangers coming and going at all times. Are you prepared to suck it up and deal with the inconvenience? If not, you will need to plan (and budget) for staying somewhere else while the renovation is happening.For example, my parents recently did a major renovation on their home and had to spend 3 weeks “showering” in their kitchen because both bathrooms were out of commission.
- Sometimes, it’s just not possible. If your house has major existing structural issues or other problems, you might not be able to renovate at all. In cases like this, there’s no sense in throwing good money into a property you know has problems. You’re better off moving to a new home.
2. Buying A Home
Buying a home is the next most common choice we see for home upgraders. And it’s often the better choice.
As we covered above, renovations can be stressful and time-consuming. It’s much simpler to buy a place that has everything you’re looking for.
This is especially true if you have something you don’t like about your current home but can’t change, e.g. the suburb it’s in.
Read More: Using equity to buy a second property.
Pros of buying
- There are no surprises. If you’re renovating your home, there’s always a chance that the final result won’t be quite what you pictured. When you’re buying a house, there are surprises. If you do your due diligence and get all of your building, pest and other inspections done as you should, then you can be pretty confident that what you see is what you’ll get.
- Less disruption to your daily life. Renovating can be messy, noisy, and can go on and on with no end, especially if you encounter any problems that will delay the process. When you buy a house, there is still going to be some disruption thanks to the “joys” of packing and moving home, but it’s a known quantity. There will be a couple weeks of chaos, but it should be smooth sailing the rest of the time.
- A chance to declutter. When you start packing for your move, you may begin to realise how much random junk you have around the home. There’s no point in packing all that useless stuff just to unpack it and have it take up space in your new home. Moving into a new home is a great opportunity to declutter and get rid of old clothes and other items that you no longer need.
- It’s a fresh start. You know what they say – a change is as good as a holiday. Moving into a new area can give you opportunities to become part of a different community, explore new places and expand your social network. You might be able to get access to better schools for the kids or some great local facilities to make your everyday life more enjoyable.
- You know how much it will cost ahead of time. The costs of renovating and building almost never meet your expected budget. This introduces a fair bit of uncertainty which many people don’t feel comfortable with. When you’re buying a home, the costs are known – especially if you make sure to factor in ALL the costs of buying. This makes it a lot easier to budget and can reduce a lot of stress.
- It’s a lot less work. With your other options, you will be facing a lot of extra work. Discussions with builders, planning, organising contractors, and everything else take a lot of time and effort. If you’re buying a home, you’ll still need to do some work, especially during your research phase. But it will be a lot less work than renovating or building.
Cons of buying a home
- Finding the right property takes time. It might be simpler and easier than building or renovating, but buying a home still takes time and effort. You’ll need to spend some time doing your research, going to inspections, and everything else. You can expect to miss out on a couple of “perfect” homes during the process, and there are guaranteed to be a few false starts. It can be a long and frustrating process.
- Additional costs. Depending on your situation, buying a home can work out to be more expensive than renovating. You’ll need to consider the costs from both sides: buying your new home and selling your old one (unless you choose to keep it as an investment). The highest cost when buying a new home is stamp duty. These costs are avoided when renovating.
- Getting the timing right can be tricky. If you’re selling your old home, you’ll need to decide whether to buy first or sell first. Both have their advantages and disadvantages, but either way, the timing can be a bit tricky. If you get it wrong, you might have to sell your existing home for less than you wanted. This can then affect your ability to finance your new purchase.
- Moving to a new area can be tough. If you have kids in school, they will need to make new friends, which can be especially tough as they get older. Even if you don’t have children or they’re at a young age, you might find it a bit challenging at first as you get to know your new area and neighbours.
3. Build A New Home
Building a new home can be an exciting opportunity for home upgraders. After a few years of living in your current property, you will have a pretty good idea of what you do and don’t like. You’re much clearer about what features matter to you and which ones you don’t care about.
Imagine being able to walk into a brand-new home built to your specifications in a great suburb with all the amenities you had dreamed of.
Building a home is exciting, but it’s not without its drawbacks.
Pros of building a new home
- You get to build the house of your dreams. When you’re building a new home, you’re in control. If you can’t find anything that suits you on the market, you can just build it exactly as you want. In this case, the sky is the limit on what you can achieve – as long as your finances can support it.
- Save on stamp duty. When you build a home from scratch, you only need to pay stamp duty on the land, not the house. This is also true if you move into a newly-built home that has never been lived in before. As mentioned earlier, stamp duty is one of the highest costs you’ll face when buying a home, so building can translate into a big saving.
- Time it right, and it might be way cheaper. If you’re willing to buy off the plan, you might be able to find lower prices on offer in the first stage of sales for a new development. Developers have a quota of properties they need to sell off the plan in order to get finance and begin construction, so they often offer an enticing deal to the first people ready to take the plunge. Getting this deal can save you thousands of dollars and make your build cheaper than you had anticipated.
- New homes are typically more energy-efficient and environmentally friendly. They are made with brand-new materials and come fitted with new appliances, so they tend to be more energy-efficient. Think beyond the initial costs and look at the future. With a new, energy-efficient home, you could be saving money on energy in the long run. If you’re a bit of an environmentalist and interested in limiting your carbon footprint, you can go the extra mile and build your home out of eco-friendly materials and choose an eco-friendly home design.
Cons of building a new home
- You may need a higher deposit. You may need a higher deposit to get a construction loan than you would need to buy an existing home. If you don’t have a lot of savings or equity in your current home, you might have trouble making it happen.
- Building takes time. When you build, it takes time, and you’re virtually guaranteed to get some delays somewhere along the way. The Australian Housing and Urban Research Institute(AHURI) says it can take up to 7.5 months on average to construct a new home from scratch. This can sometimes cause some issues with your financing. Many home lenders restrict borrowers by requiring that the house must be completed or at least begun within a certain time frame from settlement, usually ranging from 6 months to 24 months. If you can’t meet those time restrictions, you may need to arrange an extension.
- The cost is not fixed. When building, your costs can spiral out of control if you’re not keeping an eye on what is being spent and where. You’ll need to check your builder’s contract carefully to make sure it includes everything you need. When buying off the plan, make sure to ask a lot of questions about the display home that you see. You don’t want to discover that the beautiful tiles and light fittings used in the display are not included and then end up with cheaper versions in your home. You should also be aware – if you need to make any modifications to your plan mid-way, it’s going to cost you. Changes made midway through construction can incur additional costs such as:
- Drafting fees
- Penalty fees from the builder
- Legal fees for altering the contract.
- Extra materials
- Extra labour
- There’s more paperwork involved. When you apply for a construction loan, you’ll need additional paperwork beyond the standard income payslips and bank statement. You’ll also need to provide copies of building permits, building contracts, building plans, and building insurance. On top of this, you’ll need to keep your lender updated along the way about any changes to the building plan, costs, or contracts.
- It can be overwhelming. There are a lot of choices to make during the building process. Finding the right block of land, choosing your building plan, fittings, fixtures, landscaping… the list goes on. You’ll have to do all of this and stay within your budget. Managing all the details that go along with building a home takes time and effort. Don’t underestimate the depth of stamina you’ll need to make sure it’s all done the right way. It’s a lot to handle. If you’re not crystal clear about what you want, you might get overwhelmed.
- New neighbourhoods. New houses are built in undeveloped communities more often than not. That means there may be fewer amenities nearby, smaller yard sizes, and closer proximity to your neighbours. If landscaping isn’t included in the cost of the house, you might have to deal with mud and dust in the backyard until you can afford to have it landscaped. You should also think about timing. If you’re one of the first houses on the block, you might live in a construction zone for months, or even years, until the community is fully established.
If you love your location but don’t love your house, it’s worth considering a knockdown/rebuild. This is when you demolish your current home and rebuild on the same block of land. Knockdown/rebuilds are becoming an increasingly popular option in Australia.
Pros of a knockdown/rebuild
- Change your living space without changing your address. If you’re living in a street you love, with great neighbours and a great neighbourhood, a knockdown rebuild can be a great choice. You get to upgrade to a brand-new house while keeping the benefits of your location.
- Retain the value of the land. The value of your land is much higher than the value of the house that sits on top of it. If you’re sitting on a good block of land, a knockdown rebuild allows you to retain that value.
- Full creative control. Just like building a new home, you get full creative control with a knockdown/rebuild. From the house’s orientation to the layout design and styling, it’s all in your hands. You get to build your dream home.
- It may be cheaper than buying or renovating. Sometimes it’s easier to start from scratch. If you’re looking for a major renovation with a budget in the hundreds of thousands, knocking down the house and starting with a clean slate can be cheaper. Depending on what you’re looking to achieve, it can even be cheaper than building on a new block of land.
- Minimal maintenance. As we mentioned earlier, a new home has modern fittings and appliances, which are usually simpler and easier to maintain than older ones.
Cons of a knockdown/rebuild
- You lose the character of the original building.If you’re living in a heritage building area, knocking down your home and building a new one might not be your best choice, and the council may not approve it. But even if they do, when it comes time to sell, you may find that buyers in your area are less interested in the only modern home on the block.
- Time. As with building new, a knockdown rebuild takes time. And there’s going to be delays. You’ll need to make sure you’re mentally and financially prepared for this.
- Need for alternative accommodation. If you’re doing minor renovations, you may be able to stay in your home while the reno is going on. Or if you need alternative accommodation, it may only be for a short period. If you’re doing a knockdown rebuild, you can expect to live somewhere else for 6 months or more. You’ll need to factor the cost of this into your budget.
- Council approvals. Getting council approval can take much longer when you’re doing a knockdown rebuild compared to building new. For example, a two-storey home can be difficult to get approval for in an area where there are mostly one-storey houses. You will also need to take into account design or heritage restrictions. This can make building the home you want challenging (or even impossible).
- Hidden costs. There can be many hidden costs associated with a knockdown rebuild. If you’re on a flood plain, you may need to pay for flood mitigation. You might need to pay for an extra electricity pole, traffic control for deliveries, or a bushfire report. Make sure you budget a big contingency for the inevitable extra costs that pop up.
How to decide what’s right for you
Now that we’ve covered all the pros and cons of your different upgrade options, it’s time to decide.
Do you love where you live? Or do you loathe it? Make a list of the good and bad things about your current location. This can include:
- Commute times.
- Local facilities.
- Proximity to family and friends
- The character of the suburb
If you’re happy with where you are, we recommend looking into a renovation or a knockdown rebuild. If you don’t like your location, there’s no point in staying where you are. Either buy or build, depending on your preferences.
Your current home
What do you enjoy about your current home? Is it full of happy memories? Would you like to make more? Think about the design. Which parts do you love, and what irritates you? What do you wish were different?
If you can’t bear the thought of leaving your home, go for a renovation. If your home holds no special place in your heart, you can either buy, build, or knockdown rebuild.
Your timeframe and plans.
Can you see yourself staying where you are for the next five years? Or do you have another place on your mind? Are there any major life events coming up? If you’re thinking of renovating, you should be prepared to stay put for a few years at least. When you renovate, you put yourself at risk of overcapitalisation. The cost of your renovation may not translate into an equal increase in the value of your home. If you’re ok with waiting for 6-12 months (or more) before you upgrade, you can build or knockdown. If you’d like to find something bigger ASAP, you’re better off buying.
Do you enjoy planning, negotiating, creating, and making choices? Are you someone who likes to get involved in the process? Or do you prefer that things are already done for you? If you want full creative control of your new home, we suggest you build, renovate or knock down. If the thought of making too many choices makes you spiral into a panic, then buying is your best option.
Read More: Renovation Loans
Bonus: 3 Proven strategies to upgrade your home without losing your sanity
- Simultaneous settling. This strategy is very rare, but it is possible. Simultaneous settling is where you buy and sell a home at the same time, i.e. the settlement for the house you are selling and the house you are buying happens at the same time. If you are looking to upgrade by selling your home, this is by far the best option, as it will allow you to avoid unnecessary costs such as rentals. For this strategy to work, you need an expert Mortgage Broker. Make sure you do your due diligence when selecting a mortgage broker.
- Bridging finance. A bridging loan is a short-term loan that you can use to purchase a new property before you have sold your current one. It provides a home loan to cover the costs of a new property until you’ve received the funds from the sale of your current home. Bridging finance can be a useful option if you don’t have enough borrowing power to buy a new home without selling your current one.
- Home Loan portability. This is a feature that allows you to transfer your home loan to a new property without the need to take out a new home loan. Simply put, you change your home but keep the same loan. Home loan portability is a good option because you avoid the hassle and costs of refinancing. However, it only works if you are using the same lender. If you want to switch lenders, you will have to refinance your home loan to the new lender.
Bonus: 3 tips on avoiding overcapitalisation when renovating
- Get the property professionally valued. The easiest way to do this is just to call up your local real estate agent and get them over. They are always happy to come to your place and do an appraisal. They’ll let you know what your property is worth today. You can even ask them what your property could be worth if you renovated the kitchen. For example, if they say your house is worth $600,000 now, but the average house on the street might be worth $800,000—that gives you an indication that you could spend up to $200,000 without overcapitalising.
- Do some due diligence on the builder that you are going to use. We’ve seen many times people have engaged a builder who is not that good, and that has slowed down the process. The slower the process, the longer you will have to rent whilst making mortgage repayments. This makes the renovation way more expensive, and you may be unable to recoup those costs when selling. Getting a good builder means the work gets done faster, and you stay within budget.
- Have a clear budget from the get-go. So as we mentioned above, if you have spoken to the real estate agent and know that you can spend up to $200,000 without overcapitalising—you need to stick to that budget. You can choose to spend less than that figure, but make sure you spend less. Having a clear budget that also accounts for contingencies will mean you will be able to avoid overcapitalisation.
Summing it all up
Everyone has different goals, different budgets, and different needs. There is no “one size fits all” when choosing how to upgrade your home. We’ve given you a detailed breakdown of the pros and cons of each option for upgrading your home and a few recommendations based on common situations.
Now it’s up to you. Take some time to think this through and assess your options. Which option would make sense based on your reasons for upgrading? How about your budget?
Whatever you decide to choose, when you’re ready, we’re here to help you finance your home upgrade.
Next steps and upgrading your home
Are you considering upgrading your home and don’t know where to begin? Our expert mortgage brokers are here to help you.
Our team at Hunter Galloway is here to help you buy a home in Australia. Unlike other mortgage brokers who are just one-person operations, we have an entire team of experts dedicated to helping make your home loan journey as simple as possible.
If you want to get started, please give us a call at 1300 088 065 or book a free assessment online to see how we can help.
Contact us now for a free assessment.