What does over - capitalisation mean and how to avoid it

All properties have a maximum value that can be achieved which is based on their location.

If your purchase price and renovations costs exceed this amount- then you have over-capitalised.

One of the most common ways that investors over-capitalise is by spending too much on fixtures, technology, inclusions, white-goods and building materials like Italian marble etc.

To avoid over-spending, investors should cater to what current trends are in their area and devise a strategic budget and stick to it.

Also, always get a detailed costing of works that you want to be carried out.

Add the amount to your purchase price and consider if you would be able to sell the property for this figure, as this is a good benchmark to establish whether or not you are over-capitalising.

When searching for an investment property that you want to renovate, ask an experienced agent what the property would be worth once it has been renovated.

This should determine how much you should allocate to spend on the renovation.

Also, look for low-cost ways to spruce up the property and try to do as much yourself.

Do you need an investment property/renovation loan?

Contact us @ propertyloans@realrenta.com

Jason Gwerder
Friday, 3 January 2020

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