Manufacturing equity – the do’s & don’ts of renovating your property investment
A property investor’s best ally is undeniably equity. Manufacturing equity, through carefully planned and executed refurbishments, is an excellent method of increasing your investment portfolio’s value and leveraging into further property investments.
While anyone has the capacity to look at a property and think of ways to increase its value, it’s not necessarily quite so straightforward when it comes to undertaking improvements in a bid to realise profits. Because the one thing you risk on any type of home reno project is overcapitalising, meaning when you go to sell or refinance the property you may not recoup the money you’ve outlaid.
With careful forethought and planning however, you significantly reduce the risk of sinking never-ending cash into the proverbial money pit. And when it comes to increasing the value of your investment property, the best advice is to stick with cosmetic enhancements, avoiding any major structural works.
Structural works eat away at your profits because potential tenants and buyers cannot see the value for money in say re-stumping or re-roofing, unlike a sleek new kitchen or bathroom that screams luxury, high-end value!
So here are a few examples of what you can do to increase the value of your property:
- Renovate the kitchen and/or bathroom
- Add an ensuite or extra bathroom
- Add a family or entertainment room
- Polish floorboards or replace old and out-dated tiles and carpet
- Add wooden shutters or new furnishings to windows
- Give it a fresh coat of paint
- Upgrade or tidy the gardens
- If there is no car accommodation, consider adding a garage or carport
- Change the light fittings
- Add built-in robes to bedrooms, or generally increase storage.
Some of the works that you might be tempted to undertake, but that will not add any significant value and could just leave you with a dent in your bank account include:
- A swimming pool, spa or jacuzzi
- Expensive designer appliances
- High-maintenance landscaped garden
- Designs that are specialised or that may date
Potential buyers and tenants always look at the finish and fit out of kitchens and bathrooms, ideally wanting modern, fresh and easy to clean surfaces, as well as the ratio of bathrooms to bedrooms, and how easy gardens will be to maintain.
So for a smarter, cheaper and more profitable renovation, keep it simple!
Finally, here are a few helpful tips to spend less and make more with your renovations:
- Seek advice from a local real estate agent and discuss your ideas. They will tell you whether it will make a difference to the bottom line.
- Attend a few open houses in your area and see what other people have done.
- Set a realistic budget and stick to it – no matter what. One of the most common overruns when renovating is finding out part way that you need to re-stump, re-roof, re-wire or re-plumb. Check these out before you start.
- Be practical, talk to architects and/or builders and get fixed price quotes. They will charge for their services but ultimately they will save you money. Ask for names of past clients to see if they were satisfied and view their renovation work first hand.
- If you need finance, speak to your mortgage broker to ensure you can get the money before you commit to your renovations.
- Don’t get too emotional about the renovations. You need to consider the type of person who will buy or tenant your property when deciding on décor and colours.
- If it is a family home, keep a flat grassy area for the children to play on but incorporate a paved courtyard for entertaining. Buy plants and water features from nurseries outside the metro area to save on costs.
For more information on how you can profit from investing in Australia’s residential real estate sector by establishing clear investment goals and strategies, click here to contact us, or subscribe to receive regular post updates and industry insights.
Stuart Wemyss is a chartered accountant and founder of Property Tycoon Finance. Email: firstname.lastname@example.org
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