Relocate or renovate?

Unexpected surprise

Karen and David knew it would be a tight fit in their charming weatherboard cottage in Sydney's inner west when they found out Karen was expecting twin girls just 20 months after they'd had their first child, Chloe. "The twins were a complete surprise and as they became mobile things became tricky. We got to the state where we needed more space and looking down the track we wanted to give them their own bedrooms," she said.

Stretched to the limit

Karen, already working part-time, felt stretched to the limit. After inspecting numerous houses that were either too far out of the city or too expensive, Karen and David knew they had difficult decisions to make. "Staying close to the city was important to us, but to move into what we felt we needed meant taking on a huge mortgage, even though our lovely house was worth a great deal. On top of that we would have to pay stamp duty and the cost of moving. It wasn't economically viable. Plus we wanted to stay in the same area."

Going up

They did the maths and the research and decided to build up a level instead. "It made more sense financially to stay and maximise our space more creatively and increase the value of our house. Also we could use the equity we had in our house to buy our first investment property and then build our capital to buy the really big house in the future", Karen says.

No regrets

Karen is resolutely happy with their choice. "Already we have more space. It was just about thinking outside the square," she says.

Keeping spending in check

If you have decided to stay where you are, you could follow these top three rules of spending on property so you reduce the possibility of overcapitalising (where the cost of improvements outweigh the value they add).

1. Get a valuation

There's no point spending tens of thousands of dollars on a renovation unless the final result is going to be recouped at final sale. So find out how much the property is worth before you begin and establish what value the changes may add.

2. Create a budget

If you're putting in a new bathroom or kitchen, or a new level, make sure it comes in on budget. Blow-outs could take a long time to recoup. Consider a project manager if you think you need help.

3. Shop around

Find discounts on everything you can. At the same time don't cut corners with quality. A bad renovation could cost more in the long term.

Thinking of investing funds to put towards a renovation or relocation? With BT Invest, you can access intelligent technology, tools and reports to help you invest no matter your level of experience or wealth.

Next: Build, buy or renovate?