Aaron Bell
Athena Cocoves
Home values often increase over time, especially in Australia, where the property market has historically delivered strong returns. However, strategic improvements allow owners to take control and actively add value to their property.
Whether you’re an investor aiming to boost rental income or a homeowner building equity, upgrades and renovations could help you achieve greater financial gains when it’s time to sell or rent.
How do property values increase?
Understanding how property values increase is essential when planning potential upgrades.
Property value is closely tied to equity — the portion of your property you own outright. As property values rise, your equity grows, offering opportunities to build wealth over time.
Here are the main factors influencing property value growth:
Paying down your mortgage
Repaying your home loan increases the share of the property you own.
For example, if your home is worth $500,000 and your remaining mortgage is $100,000, your equity is $400,000. As you pay off your mortgage, and the loan balance decreases, your equity grows.
Market changes and property improvements
- Market changes: Factors such as increased demand, lower supply and changes in the economy can drive up property prices. While many property investors try to anticipate these changes when buying properties, these changes are often unpredictable, especially for first home buyers.
- Property improvements: Strategic upgrades — such as replacing fittings, renovating key areas, or adding extra rooms — can directly boost your property’s value. As an investor, this could allow you to charge more rent and increase your passive income. Additionally, for investors and owner-occupiers, these improvements can increase your profit when you sell.
Low-cost strategies to add value
Not all improvements need to break the bank. Small, affordable changes can still make a noticeable difference:
- replacing fittings like door handles, cupboards, and windows
- adding new taps in the kitchen and bathroom
- installing energy-efficient bulbs and appliances, such as powerpoints, kettle, and stoves
- refreshing the yard or garden with new plants, flower beds, or trimming back hedges and branches.
🤓 Nerdy Tip
Energy-efficient appliances can also help reduce ongoing costs, such as electricity, water or other utility bills.
Mid-range strategies to add value
For those with a slightly larger budget, consider mid-range upgrades such as:
- painting the interior or exterior of the house with new paint for a fresh look
- upgrading appliances (washing machines, dryers, ovens or stovetops) to energy-efficient models
- installing air conditioning or heating
- landscaping the garden or yard areas for better kerb appeal
High-cost strategies to add value
For owners looking to increase the value of their home dramatically, you may consider:
- renovating to the kitchen, bedrooms or bathrooms
- adding a new bedroom, bathroom or living space
- building a granny flat, which you could use to earn rental income
- installing a pool, garage or shed.
Of course, these projects can dramatically increase your property’s value but require careful consideration of cost versus benefit.
» MORE: Want to rent your home with an owner-occupied loan? Here’s what to know
What to consider before making improvements
Deciding how much to invest in renovations and home improvements will depend on your personal circumstances. Some key points to consider include:
Financial goals
Financial goals — like increasing your cash flow, resale capital gain or paying off your mortgage — should influence your decision.
- Investors: Property investors may want to increase rent, meaning another bedroom could dramatically increase what you can charge. However, while adding a bedroom may justify higher rent, it could leave the property vacant during renovations.
- Owner-occupiers: A new coat of paint may be a great investment just before you sell, whilst longer-term residents may focus on gradual updates, like new appliances and installing air conditioning.
Personal goals
Your own values and lifestyle needs can also influence your decisions. For example, a growing family might benefit from landscaping a yard to get more space, while still getting the perk of increased resale value later.
Mortgage
Depending on your lender, refinancing or adding onto your home loan may allow you to tap into more credit to renovate or make changes to the property. Ask your lender about your options to understand what is possible based on your circumstances.
Cost of changes
It’s important to do some research to see if the cost of your renovations will be worthwhile down the track. For instance, if you own a two-bedroom house, understanding the estimated market value in the area for a three-bedroom house can help you decide if the cost of an extension makes sense.
For example, adding a bedroom to a one-bedroom house could significantly increase its market value. A $50,000 extension on a $400,000 home that brings its value to $600,000 would likely be worthwhile.
Value to prospective buyers or renters
Some improvements will appeal to specific buyers or renters. For example, a pool may add value to a large family home in Queensland, while it may not appeal to other demographics of buyers who see the upkeep and cleaning as time consuming.
These considerations are important before you invest the time and money in making improvements. Similarly for investors, air conditioning may be a point of difference some tenants would pay more rent for, while new appliances may not.
» MORE: 10 questions to ask your real estate agent before selling
How to get a property valuation
Before starting any major improvements, get an accurate understanding of your property’s current value to assess if renovations are worthwhile. Here’s how to get a property valuation:
- Independent valuation: This is an unbiased valuation of your property of its fair market value. They are typically conducted by a licensed property valuer who is not influenced by any interested parties, such as buyers, sellers, or real estate agents.
- Desktop valuation: A type of fast, inexpensive valuation made by a bank or other mortgage lender is designed to provide basic information as quickly as possible.
- Refinance appraisal: If you decide to refinance your home loan, it will typically involve an appraisal to determine the LVR for the new loan.
- Professional advice: For a general idea of property valuation, you can also speak to other homeowners or property professionals in your area, like mortgage brokers or lending specialists from your bank.
- Online market research: You can also search the sale history of your property or similar properties in the area online to get a ballpark figure of the past and present value.
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