The two bedroom unit my wife and I bought in northern Sydney in 2007, had an awkward 70s-style kitchen with bulky shelving that squandered space. It also boasted an odd shade of purple, from memory.

Undeterred, we knew that a basic renovation could transform the kitchen, and indeed the whole unit. That's the beauty of a good ‘reno’ idea, as opposed to a full scale bulldozing operation: you can make your immediate living space more attractive and increase the value of your home in the process.

In today's breakneck market, in which buyers are clamouring for smart looking property across cities like Sydney and Melbourne, this approach seems more relevant than ever.

The question is, what’s a good reno?

Renovation expert Cherie Barber once told me that budgeting is everything. Many people spend too much time and money on one room and blow the budget, according to Barber. So perhaps a worthwhile reno idea starts with a simple strategy and modest budget. In other words, getting the best bang for your buck.

Overcapitalising on renos is a common mistake however, so some property experts suggest spending no more than 5% of your purchase price on renovations. For example, if you bought a house for $800,000, you wouldn’t want to spend more than $40,000 on a reno. Sticking to that limit would at least make selling the property for, say, $900,000, a feasible goal.

By contrast, consider that a $200,000 renovation on a $800,000 house (25% of the purchase price) would necessitate that you sold the property for at least $1m, to ensure you didn’t lose money. CommBank says that because renovations often go over budget it’s wise to plan for an extra 30% in costs. That might not always be possible, but a buffer of some sort is smart.

Start simply

There are some easy ways to make a strong first impression with potential buyers without burning through cash, says spokesperson for mortgage broker Mortgage Choice, Jessica Darnbrough.

For example, "re-painting is a cost effective way to add immediate value to your property," she says. "And when choosing a colour, it’s best to go with a neutral palette to appeal to a broader range of buyers."

By the same token, "giving your front lawn a tidy up and your fence and front door a new coat of paint will definitely add value to your home."

Of course, if you have a bit more money to spend, refreshing the kitchen and bathrooms should also be on your reno agenda, says Darnbrough. Others seem to agree with this, given that a large majority of kitchen and bathroom renovations (about 73-74%) across the country were performed on homes between 11 and 20 years old, as per a recent survey by the Housing Industry Association.

This is quite a remarkable stat when you consider that 10 or 20 years isn’t that long in the life of a house. Property owners clearly see the value of updating these two rooms regularly.

"Your kitchen and bathroom are the most important rooms in your property,” says Darnbrough. “People will be more likely to spend big bucks [buying a property] if the kitchen and bathroom are freshly renovated.

"For example, you may choose to replace your cabinet fronts only. Depending on the age of your kitchen or bathroom, there’s a very good chance that your cabinet internals are still intact. By replacing the fronts, you can save yourself significant dollars and still achieve the desired outcome.”

Still, it’s hard to know exactly how much value you're adding with any one change. For example, we gave our kitchen a fresh coat of white paint, installed new cabinets and appliances and laid down some good quality Italian tiles on the floor. What were these simple changes worth, exactly?

We sold the unit a few years later for around 30% more than we purchased it, and while Sydney property prices began to rise sharply at the time, I believe our reno helped greatly in attracting prospective offers. Our outlay for that renovation was only $15,000, relatively small in the grand scheme of things and also met the ‘5% of the original purchase price’ rule.

Chief executive of buyers’ agency Your Empire, Chris Gray agrees that several small scale improvements can instantly lift the value of your home. For example, a basic job like re-carpeting can cost as little as $5,000 while adding as much as $10,000–$20,000 to a property’s value, he says.

"One of the biggest misconceptions is that the more you spend renovating, the more profit you will make,” says Gray. “This isn’t always the case and you need to be careful of undercapitalising as well as overcapitalising. A valuer can tell you if your $30,000 kitchen renovation will actually add $30,000 to your home’s value.”

Call in the experts

Gray says that using experts like a valuer and project manager can often save you time and money.

"Handling the renovation yourself could save money initially, but hiccups along the way might turn your $40,000 renovation into a $60,000 - $80,000 job in the long run – not to mention the added time it might take," he says. "Each week you go over time is a week’s lost rent or extra mortgage repayment."

We didn’t have a project manager for our unit, but we did discuss our budget and timeline with our builder before committing to the project. We also selected many of the materials ourselves, which helped us keep tabs on costs.

This was easy enough because our renos were all cosmetic, which Gray says is important given that structural change is usually the reason reno expenses escalate. It’s therefore crucial that you’re aware of any potential structural damage before you purchase a property.

In the end, you need to assess buyer appetite for the changes you’re making and how much it’ll likely cost. It’s often simple and inexpensive changes that can have the biggest impact.

By JP Pelosi.

See also:

The top three questions builders are asked by architects and homeowners

Construction and renovations propel economy

Handy tips while renovating