How sweat equity can build wealth
Friday, 15 August 2025
Beyond the purchase price
When buying your first home, the purchase price is only part of the equation. For many buyers, especially first home buyers, a property that needs work can be a powerful way to enter the market and build long-term wealth through what is often called sweat equity.
Sweat equity is the value you create by improving a property yourself, rather than waiting for the market alone to do the heavy lifting. While buying a do-up is not for everyone, it can be a strategic first move when approached with the right planning and advice.
Why a do-up could be your best first move
Buying a home that needs renovation can unlock opportunities that move-in-ready homes often do not.
A lower entry price is one of the biggest advantages. Do-up properties are typically cheaper, which can allow you to buy into a better suburb or a more established area that might otherwise be out of reach.
Renovating also creates forced equity. Instead of relying solely on market growth, the improvements you make actively increase the value of your property, often in a much shorter timeframe.
There is also the benefit of control. You can design the home to suit your lifestyle and renovate in stages as your budget allows, rather than paying a premium for someone else’s design choices.
The financial side of renovating and what you must know
The financial structure of a renovation purchase is where many buyers come unstuck. Planning this correctly from the outset is critical.
Renovation costs can vary significantly. A kitchen renovation alone can range from around $20,000 to well over $100,000 depending on scope, materials, and labour. The challenge is not just the cost, but how those costs are funded alongside your home loan.
Many buyers aim for a 20 percent deposit, but also want to keep some cash aside for renovations. If you use part of your deposit for renovation work, your loan-to-value ratio may increase. This can push your loan above 80 percent LVR, which may result in additional requirements such as a registered valuation or lenders mortgage insurance.
One strategy some buyers use involves support from family, either as a loan or a gifted amount, to fund the renovations. Once the work is complete and the property has increased in value, a new valuation may allow you to refinance up to 80 percent of the new value and repay the family loan.
This approach can be effective, but it has many moving parts and must be structured carefully. It is one of the key reasons buyers should speak with an adviser before making an offer.
Your pre-purchase checklist for a renovation property
Due diligence is essential when buying a do-up. Skipping steps can quickly turn a smart purchase into a costly mistake.
A professional building inspection should always be your starting point. This helps identify whether issues are cosmetic or structural and highlights potential costs you may not have budgeted for.
Council records and consents are equally important. Check that existing work has been properly consented, as unconsented work can create complications with finance, insurance, and future resale.
Before making an offer, obtain realistic quotes from builders or tradespeople for major work. This ensures your renovation budget stacks up and that the property still makes sense financially once costs are factored in.
How to maximise value once you own the property
Successful renovations focus on substance before style. Address the bones of the home first, including structural repairs, roofing, insulation, and weather tightness.
Once these fundamentals are sound, prioritise areas that deliver the greatest return on investment. Kitchens and bathrooms consistently add value, as does creating additional bedrooms or improving layout and flow.
Well-planned renovations not only increase property value but can also significantly improve liveability and long-term enjoyment of the home.
A smart path to building wealth
Buying a do-up property can be one of the most effective ways to enter the property market and build equity early. It requires effort, patience, and careful financial planning, but the rewards can be substantial, both financially and personally.
If you are considering this approach and want to understand how renovation lending works, professional advice can make all the difference. With the right structure in place, sweat equity can turn a modest first purchase into a strong foundation for future wealth.
For more information and to talk through how we can best help you, please contact us at info@krispedersen.co.nz or call the office at (09)4864719, and we can discuss what you want to achieve from there.
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