Sydney’s premium property markets, from the Northern Beaches to the Upper North Shore, have long been defined by limited stock and high price tags.
High entry prices for move-in-ready luxury homes are prompting buyers to consider properties with renovation potential. According to Herron Todd White, these homes are becoming a viable option for securing lifestyle and long-term value at a lower initial cost.
But, like many homebuying strategies, there are pros and cons to renovating and understanding these will help you make a more informed decision about buying a ‘fixer-upper’ in Sydney’s prestige postcodes.
The pros of renovating in a prestige suburb
Lower entry price
Homes that require updating often come at a lower price than modern, fully finished properties. This gives you a chance to enter sought-after suburbs without paying the premium for a move-in-ready home.
Ability to tailor the home to your needs
Renovating allows you to create a home that meets your personal needs. By customising the layout, finishes and functionality, you can add significant capital value that could exceed the renovation cost. A well-executed renovation in a premium area can see a substantial return.
The cons of renovating in a prestige suburb
Time commitment
Renovation and rebuild projects can be lengthy. Delays in council approvals, contractor schedules or supply issues can stretch timelines and affect your living arrangements.
Unexpected costs
Renovations often uncover hidden problems, from structural issues to outdated wiring. Even with careful budgeting, surprises can push projects over budget and reduce potential profit.
How much value does a renovation add?
While renovating offers benefits beyond just financial, understanding the numbers is key. According to Ray White, a simple way to estimate if your renovation will pay off is to use this formula:
New Value = Current value + cost of renovation
For example, if you buy a $3 million Cremorne home and spend $500,000 on a substantial renovation, you might reasonably expect the property to be worth around $3.5 million afterwards.
However, factors like overall market conditions, location, buyer appeal and demand will all heavily influence the final outcome.
Financing a renovation
There are several ways to pay for a major renovation or rebuild.
Construction loan
This is the most common financing vehicle for significant renovations. Unlike a standard mortgage, funds are drawn down in stages as the builder completes specific phases of work. You will only pay interest on the money that has been disbursed, which can save you money.
Securing a construction loan requires a licensed builder, appropriate insurance and fixed-price contracts, and council-approved plans. Your lender will also arrange a valuation based on the estimated end value. Since funds are released in stages, changes to your timeline or building costs need to be managed carefully.
Home equity
If you already have equity built up in this or another property, you can refinance your existing mortgage to release that capital appreciation. The exact amount of equity you are allowed to access can differ from lender to lender, but is usually up to 80% of the property’s value.
Bridging finance
If you are selling a property to pay for the purchase and renovation of a new property, a bridging loan can provide short-term funding. This can be particularly useful if you want to begin construction immediately without waiting for your existing property to sell.
This allows you to move quickly on a new property and start renovations without the pressure of synchronising sale and purchase dates.
Is it worth it?
Ultimately, the decision to renovate in a prestige suburb comes down to your priorities: securing a prime location, creating a home that suits your lifestyle and potentially adding long-term value versus the risks of unexpected costs and timeline blowouts.
With the right planning, a realistic budget and the support of an experienced mortgage broker, many buyers find that the benefits of renovating outweigh the challenges.