How small improvements can make a big difference to your home

Kiwis love to renovate. It’s just what we do – we buy a property, see greater potential, and decide to make some improvements.

But the amazing thing is, making even some small changes to your property can have far greater repercussions, opening more doors for you as a homeowner down the line.

Understanding equity

The reason these changes open doors is due to ‘equity’, which is the value of the property minus the amount remaining on the home loan. As you start paying off your mortgage, you build equity, as there is less money owed on the home compared to its value.

Let’s break this down a little. According to Statista, the average New Zealand property costs around $900,000 (which is crazy). If you paid a 20% deposit on this, which is the ‘ideal’ amount, you’d have a loan value of $720,000 and equity of $180,000.

Property Value $900,000

Minus remaining home loan amount $-720,000

Gives an equity value of $180,000

After a few years, we’ll assume you’ve paid off $100,000 from the loan. Now, you’d have an equity value of $280,000 if the property value hadn’t increased. But if it had, let’s say to $1 million, your equity is actually $380,000 now.

New property value $1,000,000

Minus remaining home loan amount $-620,000

Give an equity value of $380,000

Start with the small things

When you’ve just bought your new home, it can be tempting to dive right in and make massive changes on day one, which is fine if you can afford to do that. But if that deposit has taken a bit out of your renovation fund, then your best bet is to start small, as small changes can have big boosts to value.

· Give the property a general tidy-up can make a huge difference, as presentation is everything. If it looks clean, it’ll look more valuable to banks and property valuers

· Giving the place a new lick of paint can do wonders, all you need is a colour you like

· Make some cosmetic changes to the kitchen, replacing worn handles and drawers and maybe painting the cabinets

· If you have a garden, weeding it and giving it spruce can add quite a bit of value to your home

· Replacing older door handles can give the place a fresh feel

Tiny changes like these can really make a real difference and don’t cost a bomb. If you’re doing these over your weekends, you’ll quickly be building up more equity in your home than if you were waiting for the market value to go up and making your mortgage repayments.

Making that equity work for you

Once you’ve got some of these smaller jobs done, you can find out exactly how much value you’ve added to your home. Your local council is in charge of property valuations, so contact them and organise an updated valuation of your home.

If the value’s gone up, you’ve just opened up some of those doors and can start using your equity to make bigger renovations. By taking out an equity loan, you’ll be capitalising on the value of your property, while increasing your equity further.

And again – unless you’re rushing to flip the house – you can take your time, using smaller loans to complete these larger jobs one at a time, reducing the stress on your finances.

Building on success

By starting small and working your way up to the big jobs, you can not only increase the value of your property, you can massively boost your equity.

The more equity you have, the more you can borrow to make the next improvement, or the more you can draw on to purchase your next home.

And all you have to do to get started is decide which of those little weekend jobs to tackle first.

This blog is provided for general information purposes and is not a recommendation you enter into or exit any particular loans or insurance policy. Information on the website does not consider your particular circumstances, including your objectives, financial situation or needs. We recommend you seek advice from a financial adviser before taking any action as appropriate. The Lending People Limited (FSP240365) is a licensed financial advice provider and can provide advice on some types of personal loans. Find out more about The Lending People and how we may be able to help you.