Overcapitalisation is a situation where you make renovations or additions to a property that ensures your property’s value extends well beyond what buyers would pay to live in your suburb.
How to avoid overcapitalisation
One of the first and best things to do is to talk to your local real estate agent. They know the local market, and understand what will effectively add value. For example, there could be strong demand for homes with two living areas, necessitating a bedroom renovation rather than focusing on, say, a landscaping project.
Also conduct market research on your suburb and neighbouring areas, to avoid overcapitalising beyond what buyers generally pay.