How do you know if you've overcapitalised? When you've spent $15m and the house is worth $5m

How do you know if you’ve overcapitalised on your property? When you’ve spent $15 million and the house is only worth $5 million, it’s probably safe to say you’ve tipped into the realms of too far.

In an extreme example of overcapitalising — but also arguably persistence — a luxury riverfront property in America’s Pacific Northwest with an unfinished home the size of the White House is for sale, asking $US3.99 million (or $A5.18 million).

Hollywood Videos entrepreneur Mark Wattles was the first owner of the home in West Linn, Oregon, and started to build it after buying up the surrounding land for $A1.6 million in 1994, The Oregonian reported in January. 

He poured more than $US12 million ($A15 million) into the mammoth build, but after facing legal battles over permits, moved to Las Vegas with his family before he could complete the home.

In 2018, Wattles sold the property to another buyer for just $A2.9 million, losing more than $A12 million in the process.

At the time, he lamented he had gone “overboard” on the mansion and its plans.

The second buyer, who has also not completed the home though he had planned to make it a Tuscan style villa, is now also selling the home without completing it. 

He has spent an unreported amount of money on plans and keeping the building permits up to date.

On its website, Christie’s International Realty states that buyers “will never find another estate like this one”.

“The residence, once complete, will be the largest in Oregon —topping even the governor’s mansion — and the property is one-of-a-kind, private acreage on the point of a peninsula along the beautiful Willamette River where deer roam and bald eagles nest,” the listing states.

“The only thing limiting you from creating the home of your dreams is your imagination.”

Current plans for the home include space for nine bedrooms, an indoor basketball and racquetball courts, underground parking for dozens of cars and a helipad, for those wanting to avoid the peak-hour traffic. 

The property, on almost 13 hectares, also has space for a vineyard.

The home may offer a good investment for another buyer to cash in, but experts say those looking for less glamorous renovations and builds in Australia, should think before they overspend.

With a record number of people spending on renovations in Australia as many homes remain tightly held, Wakelin Property Advisory director Jarrod McCabe said renovators and rebuilders needed to consider exactly what they need before starting any works.

“Just because you spend $20,000 on a property, doesn’t mean it’s going to increase the value by that much,” Mr McCabe said.

The perfect example of this was adding a pool to a property in a city with a colder climate like Melbourne. Pools did not add a lot of value because it wasn’t something every buyer was looking for in the city.

“You typically find overcapitalising occurs when you renovate when you don’t necessarily need to,” Mr McCabe said. 

That includes changing a kitchen when you may simply not like it, rather than it needing to be replaced.

LJ Hooker Sydney’s Ben Mitchell said keeping colour palettes neutral would widen buyer appeal if renovating.

Mr Mitchell said he had sold homes with kitchens that were red, blue and even purple, and this had lowered the number of buyers who were interested in the homes.

“You need to appeal to the masses,” Mr Mitchell said. “A few key things in a property are kitchens and bathrooms that are nice, modern and functional. They don’t need solid gold taps,” he said.

Landscaping and natural lighting were also important for a good sale.