Should you save or should you borrow?

Written by Kodie Axelson

The renovator issue! Well, if there is a topic that I can relate to, this is surely it!

I have renovated many houses, my own as well as investment properties, and I’m back at it again as we speak! Renovating houses is such an amazing space to fulfill your creative cup, as well as your money-making cup. Two things I hold dear to me.

So how do you know if you should save up your cash to do your reno, or borrow using equity in your home?

Well first off, you need to know if you have equity in your home. In a general sense the equity you have in your home is the value of the property minus the debt held over it. Now, from a lending perspective you don’t have access to all that money so call me if you want to know how much can use!

It also depends on the size of the renovation. If you are using building plans and changing the structure of the property, and the renovation is quite costly, chances are you may need to have the bank value your property based on what it will be worth once the works are complete.

This process is very similar to a construction process when building a house from scratch. The bank controls the money, and it is paid in increments. If you do not have sufficient equity in our home, but you are doing major renovations such as this, then this process can help you access the money you need.

When doing smaller renos or completing the work yourself you can save the money and begin when you have enough funds; or you can borrow against your home and not have to wait. Are you patient or are you not?

To decide whether you do this or not, I would consider what your cash flow looks like. If you’re saving to do the renos, history tells me you may be in a position where you don’t have a whole lot of spare cash.

But if you are saving a certain amount every week or fortnight towards your renos, you may want to ask yourself the question of “can I afford to increase my home loan to match as much as the amount I am saving, and get the works done straight away?” The extra dollars in repayments may be less than what you’re saving.

Depending on what type of reno you’re doing, and the extent of it, chances are you are going to increase the value of your home. The upside to spending money on your property is that you are increasing its value and therefore increasing the value of your asset base. This can lead to further opportunities such as buying an investment property using the equity you have generated by increasing the value of your property through renovations. THAT sounded like a mouthful! But it is exciting to dive into these figures to really see what you’re capable of!

It is an exciting step to take and one I am very well versed on. I would love to chat to anyone looking to renovate their home and what that path looks like for you now, and in the future.
Reach out!