Renovating an older home: how does an ugly duckling become a swan?

As the COVID pandemic has spread, New Zealand's residential market has become increasingly surreal. The latest Trade Me Property Price Index shows that in the year to March, the national average asking price rose 16%, passing NZ$800,000 for the first time to reach a record NZ$805,100. March also marked the 7th consecutive month in which New Zealand's average asking price reached a new record, with no sign that house price growth would slow any time soon.

Against the backdrop of New Zealand's unexpectedly buoyant property market, first-home buyers are finding it increasingly difficult to enter the market and face growing financial pressure. More buyers are therefore considering renovating an older home: purchasing a dated house on a good street for less money, then renovating it into a comfortable, convenient home. Repeated lockdowns and working from home have also created new expectations for living environments, prompting some owner-occupiers to consider redecorating or extending their homes. 

For investors, meanwhile, with deposit rates continuing to fall, financial markets fluctuating and property prices soaring, how can limited funds generate the greatest return? Alongside buying a new home outright, buying an older property and renovating it appropriately is a sensible way to increase its value quickly. The constant stream of reports about substantial profits from renovating and reselling homes bears this out. 

Meanwhile, the introduction of the new Healthy Homes Standards means many landlords can no longer continue their previous low-investment, high-return approach: buying a relatively cheap house in poor condition, renting it out without renovating, and using the rent to pay the mortgage. Whether they intend to change investment direction and sell their rental property, or upgrade it to meet the new standards and continue renting it out, renovation has become the clear choice for landlords seeking to increase their property's value.

The market for renovating older homes is substantial and demand is strong. However, these projects are often complex, involving lengthy approval procedures and specialist building knowledge, with all sorts of problems potentially arising during the work. So what kinds of homes are suitable for renovation? How can you effectively avoid renovation risks and achieve the best value for money?

 

What kinds of homes are suitable for renovation?

Generally, renovating an older home covers five main areas: expanding family living space; adding another storey to the main building; changing the interior finishes or layout to suit personal preferences and ideas; upgrading the kitchen or bathroom; and subdividing or enlarging rooms in different parts of the house.

Because older homes have been in use for many years, most have some issues with their condition, and may even have hidden safety hazards. Not every house is therefore suitable for renovation. Gaining a thorough understanding of the house before deciding to proceed can help prevent problems.

Homes with sound primary structures are more suitable for renovation than leaky or mould-affected houses, or homes with hidden leak risks such as flat roofs, narrow roofs or recessed balconies. Where the main structure is defective, builders cannot assess the extent of damage without removing the cladding and can quote only from the drawings. Initial quotes may therefore differ from actual construction costs. The council and engineer may also require all exterior cladding to be removed during inspections so that damaged timber can be checked and replaced. This creates very high risks when estimating construction costs and time. 

Homes with a good layout and orientation also provide a relatively sound basis for renovation. Externally, the house should be set an appropriate distance from the boundaries, have a favourable overall orientation, and have underground pipes at suitable positions, distances and depths. Inside, generous space helps designers plan different functional areas, improve circulation and comfort, and strengthen connections between indoor and outdoor living. The positions of plumbing and electrical services also need careful consideration.

 

Clearly defining your renovation needs is essential 

Once you have established that the house is suitable for renovation, whether you plan to modernise an old kitchen or add a child's bedroom, the first step towards creating the most attractive home at the lowest cost is to calculate the project's cost, workload and duration.

Researching and clarifying your needs therefore comes first. If you are unsure what style you want, look for inspiration in home decorating and design magazines, or use Pinterest to find and save ideas. This will help you set a goal and sketch an overall design based on your needs.

Once your needs are clear, a detailed renovation plan is essential to a smoothly run project. Your renovation company can certainly help, but some matters need to be decided in advance, including your budget and preferred materials. On-site measurement is a particularly critical design step. Council records for older homes may be inaccurate, creating errors in construction drawings that affect the later building process. Accurate site measurements are therefore crucial when designers prepare their drawings.

Allowing enough time for renovation is also necessary. Home renovation projects in New Zealand often take much longer than expected, so leave sufficient time for delays. Building extra time into the schedule helps prevent unnecessary stress when progress is slower than anticipated.

Before making a final decision, it is best to seek advice from several renovation companies so you can compare them and make an informed choice. Experienced companies often charge more than less experienced ones, so investigate their reputations and ask plenty of questions to uncover any potentially hidden costs.

 

Tips | The usual process for renovating an older home:

Make an initial enquiry with a building or renovation company

Have an architect carry out a feasibility study

Obtain a pre-construction cost estimate

The client agrees to the cost estimate

Conduct an on-site assessment and discussion with the client, architect and builder

Draft the design proposal and brief the client

Submit the final design for consent

Consent is approved

The builder provides a quote based on the approved plans

Await client approval

Complete the building contract signing process

Collect the deposit

Confirm the start date and estimated completion date

 

Five renovations offering the best value for money

Generally, the main purpose of renovating, redecorating or altering a property is to improve its appearance and value, making it more attractive to the market. However, renovation priorities vary between locations because market demand and property conditions differ.

You therefore need to ensure that every dollar spent on your home produces a return. Specialist renovation companies recommend estimating both the renovation cost and the value it will add before starting, then choosing the best value-for-money option. This depends on your area, the condition of your property and how your home fits into its surroundings.

Generally, the following five improvements offer some of the best value for money:

Adding a garage: if you live somewhere such as Ponsonby, where parking is extremely tight and on-street parking is the norm, a double garage can add around NZ$200,000 to your property's value. But if there is plenty of free parking nearby, you do not need to spend heavily on parking spaces. This can reduce renovation costs and allow you to focus more on the property itself. 

Adding an extra room: this places a property within an entirely new range of market searches. An additional bedroom in particular can make a huge difference to its value. Christchurch-based construction cost consultancy director Andy Thompson said: 'We recently valued a house in Mount Eden where an owner had spent around NZ$100,000 creating an extra bedroom, increasing the property's overall value by NZ$200,000. Adding a family room or master bedroom suite usually has the greatest effect on a home's value, and brings it into an entirely new range of searches when it goes to auction.' 

Decks and patios: improving these can add around 30% to a home's value. Andy Thompson noted that New Zealanders enjoy summer activities, and improving decks and patios and their indoor–outdoor connections can add substantial value. Hardwood for a deck or patio costs around NZ$5000 to NZ$15000, but renovating these areas can add around 30% to the whole property's value, making this one of the most cost-effective older-home renovations available.

Heating: because New Zealand winters are relatively damp and rainy, heating is vital in a home. A fireplace or heating system can make a property more attractive to buyers or tenants, and adding heating can increase its value.

Upgrading the basement: converting a basement is one of New Zealand's most underrated renovation ideas. If you do not have enough space to add rooms to your home, converting the basement is the simplest practical option. A well-planned basement can easily become a stylish bar or multipurpose media room, and can also serve as a children's playroom. If you decide to convert it, consider adding a separate entrance, kitchen and bathroom to increase resale value further.

 

Keep your renovation budget under control

A YIJU New Zealand reporter learned that replacing the flooring in a 150-square-metre home costs around NZ$11250, or NZ$75 per square metre. Partitioning off a new 12-square-metre bedroom costs approximately NZ$22,000. Resurfacing a courtyard costs around NZ$166 to NZ$888 per square metre. 

Tracey MacKenzie of Builderscrack.co.nz noted that kitchens and bathrooms may be the most expensive rooms to renovate, but they are also the two most commonly renovated areas. A kitchen averages 8 square metres, with a budget of between NZ$13,000 and NZ$22,000. A bathroom averages 6 square metres, with a budget of between NZ$12,000 and NZ$19,000. 

In Auckland, renovation costs vary by location and type of work, ranging from NZ$1800 to NZ$2500 per square metre. NZ$1800 per square metre is the minimum basic cost; the average is NZ$2500 per square metre; and anything above NZ$3000 per square metre is too expensive. Generally, a whole-house renovation, including the bathroom and kitchen, costs an average of between NZ$80,000 and NZ$160,000, depending on the house's size, building requirements, product and fitting choices, and other factors.

Before undertaking any renovation, estimate its cost and how much value it will add. Take a house worth NZ$600,000 with total renovation costs of NZ$80,000. Assuming the landlord originally paid a 30% deposit, the total cash investment including renovation is 600,000 × 30% + 80,000, or NZ$260,000. If the property's value reaches NZ$860,000 after renovation, its gain in value exceeds NZ$100,000 after deducting costs such as agency fees and interest. This means that a well-executed renovation can deliver a very substantial return.