When, why & how to renovate your investment property

When, why & how to renovate your investment property

Renovating is key to a healthy property portfolio but many owner’s shy away due to the headache, disruption to income and general lack of education about what rewards it can reap. Saying that, it's a minefield of angry owners corporations, nosey neighbours & lazy tradies so you need to get the right advice and the right team on your side.

 

Why renovate

 

Renovating can see some of the major benefits for your investment including:

  • Greater rental return - a refurbished property will typically see a higher rental return than an unrenovated property meaning you will boost your cash flow immediately

  • Increased property Value - renovating can instantly add a substantial figure to your property’s valuation which also boosts your equity position meaning you have more flexibility when it comes to refinancing

  • Good tax breaks - claiming depreciation on your renovation is a great way to reduce your taxable income

  • Greater appeal - Tenant’s will be attracted to well-presented and top quality properties. Not only will they pay a premium for a renovated property, you will appeal to a wider range meaning vacancy between your next tenancies could be significantly reduced

  • Help to minimise outgoings - Repairs and maintenance on an old property can add up very quickly and in some instances surpass the cost of doing a minor update when you take into account the opportunity cost of a lower rental amount and lack of tax advantages. Constantly arranging for repairs also takes valuable time either from yourself or your property manager.

 

These benefits however are often offset by common mistakes and general complications encountered by the inexperienced. All of which can be avoided if you plan properly. Ensuring you spend money on the right items and sticking to your budget is key to ensuring those potentials gains don’t turn into losses.

If the increase in value achieved from a renovation is less than what the works cost you, then you have overcapitalised. Do a feasibility and work out what your potential gain is and work backwards from those figures to arrive at your budget.

 

When to Renovate

 

Never done updates? Was the last time you updated over 10 years ago? Is your property achieving a lower rental amount that others in the area? Are you looking to refinance soon?

Any of these situations should beg the question ‘What value can I add to the property?’

Check out comparable properties - did a renovated apartment in your building just lease? If so, how much? Know what you have to spend to get a good return - don’t overcapitalise if the market for you building, street or area doesn’t support the return you need to justify the renovation cost.

Timing is key too - if you are coming to the end of a lease and your tenant has given notice, it could be worth planning a renovation in the lead up to them vacating - but make sure you don’t finish your renovation during a holiday period!

There are also good times of the year when it comes to finding tradespeople. It’s typically very difficult over Christmas and other holidays to secure tradespeople and remember the moment your current tenant leaves you want to get the project finished as soon as possible to minimise your vacancy.

 

How to renovate

 

A good project manager or builder is worth their weight in gold. Someone trustworthy, experienced and accessible. There are plenty of companies and individuals offer a full service too, so they can help you from planning the renovation through to execution of the project.

The first step is the planning & approval stage. This is key to keeping your renovation time down and minimising the loss of rent. Plan ahead and ensure you get all your approvals, plans, by-laws & trade schedule all finalised before your current tenant vacates.

As part of this process you will need to prepare everything from construction drawings, trade schedules, list of finishes, general aesthetic/colour scheme and all your reports. If you own a strata unit, all this information then forms the basis for your by-law application which needs to be approved at an AGM/EGM. Formal approval is then required before you can even touch a sledgehammer!

If you’re renovating a house or completing larger works, you are also required to adhere to local council plus a number of other potential bodies in your LGA. Depending on the size of works, you may also need Warranty Insurance or a Home Builder’s Licence.

After your plans and approvals are in place, your project manager will need to ensure trades are kept to a strict schedule - you can negotiate on rates and margins from their end too. Collect multiple quotes to ensure you’re not paying a premium for each trade. Do your research with finishes and fixtures - buy these direct and negotiate with each supplier.

 

If you’re thinking your property requires a renovation, have a chat to your Managed Relationship Manager or reach out to our team for some further advice.