B Invested

Is it worth renovating your investment property?

You’ve had your investment property for a while and it’s always been well maintained, but could it be worth your while to actually renovate it?

Some renovations will increase the overall capital value of your property and also attract extra rental income. If you take care of tenants’ basic needs and desire to live in a nice home, you may find more of them want to rent your property and will be prepared to pay a little extra to do so.
In other cases, you may need to renovate to bring your property up to scratch, compared to others in the local market.
So, it can be worth it, but it’s important to understand that some renovations are smarter than others.

It’s a superficial world

If you buy an investment property for below market value, it could often benefit from a spruce up. It’s no secret that Binvested founder Nathan Birch used superficial renovations to create fast equity on affordable properties when starting out on his investment journey.

A basic new kitchen, bathroom, or even a paint job in these instances can add value to a property right away, plus make it more attractive to potential tenants.

For Nathan, the strategy was an integral part of his success. It enabled him to leverage into multiple properties from just one deposit, by buying, adding value, then pulling out equity for the deposit on his next property.

The right strategy

Nathan had a clear strategy and it’s important that you do too. Any renovations you undertake on an investment property should be used for the purpose of getting you closer to where you want to be. Remember the property is the vehicle, not the destination.

There’s no point putting in expensive new renovations, like a feature wall or garden gazebo, only for various tenants to enjoy, especially if these things will cost money to maintain and the rental income doesn’t cover your expenditure.

Renovations to consider

Budget friendly renovations that will increase rental return and capital value include the following:

Air conditioning – Australia can be stinking hot, freezing cold, or an inconvenient mixture of both at pretty much any time. Air conditioning is one of the first things prospective tenants look for and in some locations people won’t consider renting a place without it. Smaller split system air conditioning can be installed for less than $1000, so you can expect to make the money back in extra rent relatively quickly.

Appliances – Don’t want to spend big on a brand new kitchen for your property? Consider instead some appliances that could be desirable for tenants. Including a nice fridge and dishwasher means renters don’t have to worry about buying their own when they move in, or taking them with them when their lease ends. Less hassle equals more cash.

A standard fridge and dishwasher can be bought and installed for not much more than $1000 each. When you consider they each last up to 12 years on average, even a $10 a week rental increase would be well worth it.

Bucks for built-ins – Installing built-in wardrobes in bedrooms will add storage space, which is highly regarded by tenants.

Connectivity – Throwing in an internet connection is another nice, small touch that will add value in this age of working from home and binge watching streamed TV shows.

When to furnish? – The market should dictate whether you consider completely furnishing your property. Furnishing has been known to add value in CBD studio apartments where corporates from outside the city might need a simply styled, hassle free rental for a 6 or 12 month work project. In other markets, however, it may be a deterrent. Families, couples and long term renters generally want to furnish their home themselves.

Cashflow from above

Here’s one from outside the box. Australia is basically one big solar panel. And the price of having solar power installed in your property has decreased significantly over the past decade.

For a nationwide average of just over $5000, you can have a 5kW solar panel system installed at your investment property. The purchase of a new system is tax deductible and depreciation friendly, plus they pay for themselves in savings within about 6 years and can attract tenants willing to pay more.