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Does your property need renovation? Refurbish or sell?
Manage, Owner, Sell
14 April, 2023
Manage, Owner, Sell
April 14, 2023
Due to the current market situation, changed regulations for the maintenance of a property and a possible need for renovation, owners are asking themselves which steps make sense for them and are promising in the long term. In this context, it is important to examine which options exist and to evaluate them carefully. Is a refurbishment necessary, how can a further lease be arranged or is a sale the best option after all?
Often, regular site assessment is neglected, which can negatively impact value and significantly impact costs. To make informed decisions, it is important to consider a variety of factors, including the general economic climate, new regulatory requirements, resource and energy prices, and personal circumstances. It is particularly important to consider the service life of individual components and the life cycle costs in order to assess whether measures are required on your property or whether it is the perfect time to sell.
In the case of real estate, a distinction is made between value-preserving and value-enhancing investments. Refurbishment is primarily aimed at maintaining value, but can also increase the value of the property
What does the need for renovation mean?
To ensure the value, conformity or profitability of a property, it must be regularly maintained. By definition, real estate renovation is the in-depth repair or renewal of real estate components, building sections or the entire structure.
Today, real estate has a lifespan of about 100 years. This service life consists of renewal cycles and maintenance intervals – which means that without renovation and maintenance work, the service life can be significantly shorter. Accordingly, it is in the owner’s best interest to plan early for operating costs, renewal costs and renovation investments. Renovation or refurbishment areas may also include the building envelope or major household appliances.
Efficient property maintenance and upkeep can minimize costs with predictive maintenance and reliable management.
How to finance the real estate renovation?
Due to increased construction prices and the ongoing shortage of resources in the construction industry, it is advisable to carefully plan the financing of a renovation, as the costs can be significant. Smaller jobs can often be paid for out of reserves, as they are less of a financial burden.
Set aside an amount equal to at least 1% to 1.5% of the building’s value each year. This way, you have a maintenance reserve that covers the renovations that need to be done.
Alternative financing options are often required for extensive renovations such as the installation of a new heating system, a new electrical system including solar panels, or insulation improvements.
Options for financing a refurbishment or renovation work:
Increase mortgage: One option would be to increase an existing mortgage with the bank. Normally, banks finance value-enhancing measures with up to 80% of the costs. For renovations, such as replacing a kitchen, where the value of the property remains the same, bank financing is unlikely.
Use pension assets: Value-preserving renovation measures can also be financed with funds from the pension plan. Every five years, it is possible to use funds from the pension plan for this purpose. In the five years before retirement age, you can liquidate the entire pillar 3a. However, it should be noted that taxes are incurred in the process.
Apply for subsidies: Property owners in Switzerland who want to carry out climate-friendly renovations on their property can receive financial support from the federal government, the cantons, municipalities or regional energy providers. An overview of the region’s subsidies is available at energiefranken.ch.
What redevelopment work can be summarized?
It is recommended to perform several tasks at the same time when renovation work is pending. This provides a more comprehensive renovation of the property and minimizes downtime. In addition, costs can be saved by bundling certain tasks. For example, the renovation of the facade – e.g. refreshing the facade paint or renewing the insulation – can be combined with the renewal of the windows. Installing windows separately is much more expensive and complicated. It is also worth considering upgrading the shading system at the same time.
A new heating system is another important renovation element. This can be done in conjunction with replacing radiators, switching to renewable energy and new insulation. In this way, you benefit directly from lower energy expenses and can take advantage of subsidies
What is the lifespan of individual components of a property?
It is advisable to take a closer look at the individual components of one’s property to assess whether renovations are needed. Already during the takeover of the object an analysis of the building fabric can be helpful. An expert can explain when renovations or extensive refurbishments are to be expected and approximately what costs you should expect.
The Homeowner’s Association and Tenant’s Association Lifespan Chart is an important place to start when looking at the lifespan of building components. It shows which values you can use as a guide for cables, electrical installations, operating equipment and components.
How do I calculate life cycle costs?
The life cycle costs of a property comprise all costs for the entire life cycle of the building, including operating costs and expenses for renovation measures to maintain value. Builders and property owners often underestimate these expenses significantly.
Additionally, it should be noted that periodic remediation measures can help control or even reduce ongoing operating costs. It is therefore important to set aside annual reserves of around 1 to 1.5% of the building’s value from the outset. Likewise, forward-thinking renovation and budget planning is recommended. In this way, it is possible to keep an eye on the need for refurbishment over many years
How does good management help maintain the value of the property?
Professional property management pays off over time and involves forward planning. Qualified facility management takes into account the maintenance of the property’s value, analyzes the condition of the building’s components, and creates a schedule for future renovations.
Minor defects such as dirty joints or discoloration at the base of the building can be repaired more cost-effectively if they are detected early. In addition, experts can provide you with an overview of the costs and, if necessary, increase the maintenance reserves in time.
A systematic, detailed check every five years is recommended. From this, the managers draw up a component report, which serves as the basis for longer-term maintenance planning.
Are you looking for a suitable management? Professional property management with system from Properti.
Owners often underestimate the importance of renovation measures in the life cycle of buildings and postpone them until comprehensive renovation is unavoidable and the financial resources for this are no longer sufficient. Then often follows the sale below market value. Forward-looking planning and consideration of the property’s life cycle is therefore crucial to maintaining its value in the long term.
As a real estate owner, it is therefore important to check at an early stage whether renovation is feasible in terms of time and finances, whether support options are available or whether the time is right for a sale. It is important to make a comprehensive consideration in order to make an informed decision.
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All data are without guarantee. The information on these Internet pages has been carefully researched. Nevertheless, no liability can be assumed for the accuracy of the information provided.
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