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Don’t Over-Capitalize Your Outdoor Space

April 24, 2015 • Josephine

Making Sure Your Landscaping Plan Does Not Overcapitalise Your Property

More and more people each year are opting to renovate and improve on their homes for various reasons – landscaping outdoor areas has become a popular trend. While improving, investing in or expanding your home could be a sound financial decision with many potential benefits, it’s often difficult to tell when you’ve gone overboard and when your investments are not likely to pay off.

Home renovations/improvements have become a big business (fuelled by numerous television shows on the subject); everyone seems to be renovating and we don’t want to be left behind. But how can we avoid making the mistake of overcapitalising? First, lets take a moment to understand what overcapitalisation actually is.

Modern Backyard

What is Overcapitalisation:

You know you’ve overcapitalised your property when you’ve spent way too much on home improvements to increase your home’s value, but are not able to get the return that you had hoped for from your investment.

We all know that home improvement (for example, a new kitchen, bathroom or garden) can increase the value of a property – this is in fact the case, but only when it’s done carefully. For example, you could buy a house for $150,000, and spend another $50,000 on a swimming pool, waterfall, gazebo, etc. You would then expect your house to be worth over $200,000 – unfortunately this is not always the case.

Assuming the real estate industry does not experience any fluctuations and markets remain stagnant, you may well get the $200,000 you would be expecting. Markets however, often do not remain stagnant for too long, and just as they can tip in your favour, they can also go horribly against you – this must be accounted for in your calculations when you assess the risks involved in investing in home improvement schemes.

Avoiding Overcapitalisation – A Few Things To Consider:

  1. The Upper Limit:

You may want to consider how much your property is worth and what its upper limit may be; most houses have an upper and lower limit, and getting your house upraised by a professional will help you get an approximate figure. Once you know the upper limit, you can make sure your renovations do not exceed the market value of your property.

  1. Location, Location, Location:

Keep this real estate motto in mind when you’re deciding on how much to spend on your home improvements. If for example your area is likely to have a noisy highway or large shopping mall in the future that blocks the view, your property could experience significant loss in value; its upper limit is likely to fall and expensive renovations are not likely to do too much good, no matter how much money you spend on your landscaping scheme!

  1. Less Can Be So Much More:

Instead of focusing on extravagant landscaping projects such as gazebos, waterfalls, etc., you can focus on what will make your home more buy-able no matter what. For example, if your home is in a family-friendly neighbourhood, close to schools and parks, you can assume that your buyers may have a family and some pets – a child-friendly playground and garden could go a long way for such a property. High-end stone finishings and expensive wooden floors that may be prone to damage are not likely to appeal to buyers with pets and children!

If done carefully, appropriately and with the right considerations in mind, home improvement (and landscaping features/designs) can indeed add value to your property – the trick is to do it properly and avoid going overboard, spending too much money unnecessarily!

Of course, if your home improvement is done solely for the purposes of improving the home for yourself or for lifestyle purposes, and you do not plan to put your home on the market any time soon (so do not necessarily need to add value to your home), that’s a completely different story. For those of you who are interested in making well-informed decisions about home improvement and are eager not to make the mistake of overcapitalisation, hopefully the above tips will help to set you on the right track!

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