Advise IP Kitchen - RENOVATE vs REPLACE

[MiQu]

Thanks to everyone contributing to this forum. The advice, tips and discussions have been useful for me. And I have finally purchased my first IP in BNE! The IP is a lowset house, about 20yrs old, currently rents for $300/-. The kitchen is looking dated and also needs new oven/cooktop (currently freestanding). So planning to take the oppurtunity to update.

Would appreciate advice re RENOVATE or REPLACE . The difference in the quotes is approx ~$1600/-.

Reno - replace cabinet doors, drawer fronts & metal rollers, hinges and bench top to granite transformation. The basic structure is preserved. Current structure apparent still good.
Replace - brand new laminate kitchen with "scratch resistent" granite look-a-like top (actually looks very good). Also has advantage of adding a new breakfast bar in a wall void currently present (price included).

Both are quite feasible as tenant happy for a $100/- rent decrease for period of reno (2days vs 5 days, but will still reduce 1 weeks rent), although the latter would be more messy.

Would it be better to have new kitchen in longer term? Or would it be better to save the $1600 and extra tiem and go with the reno? Would granite vs new laminate make any difference in rent? Any feedback appreciated.


Thanks again. Cheers.

 

[Dis]

Replace - brand new laminate kitchen with "scratch resistent" granite look-a-like top (actually looks very good).

Those aren't very scratch resistent unless they have come a LONG way in the last 2 years. Take a sample and try scratching it with a key / sand paper etc. Looks old fast. I'd either go regular laminate or pay the extra for Caesar stone.

GT bench tops...hmmm. Some look and feel good. Some look really bad. Get them to show you exactly what you are getting.

I think the decision depends on for how long you expect to hold the property.

 

[Raja]

If it were me and the difference was $1600 then I would definetely replace with a new kitchen. With replacing you should be able to also start claiming depreciation on it over a certain number of years.

I would also not pay the extra for Granite as there wouldnt be much difference in rent.

Regards,

Raja

 

[MiQu]

?Dishwasher

Thanks guys for the advice.

Would it be worthwhile adding a dishwasher (none currently)? The kitchen guy said the do dishwashers only 50% for new kitchens.

Cheers.

 

[Jase H]

Things that tennants perceive as improving their lifestlye/comfort definitely increase the rent you can charge (e.g. a/c, dishwasher etc).

Things that tennants perceive as only looking nice but not improving lifestlye/comfort are unlikely to increase rent (e.g. granite bench tops in kitchen, rendered house finish etc)


Jase

 

[knightm]

I rent a non dishwasher place atm - and that makes me sad They are a real assett for renters. I (and I would guess lots of tenants with ok incomes)would happily pay 10-20 pw extra for it which would mean it paid for itself in 1-2 years. If you finance it the rate of return is something rediculously high (like 1k cost financed interest only at 8% = 80 per year! if you only get $10 extra per week that is $520 per year which I think is 650% is this right?) worth it imho

 

[wylie]

Whichever way you go, I'd definitely put a dishwasher in and ask a little more rent. When things swing the other way and vacancies are not as tight as now, having a dishwasher is another plus for prospective tenants.

Wylie

 

[MiQu]

Decision...

Have decided to put in the new kitchen. Will go with laminate non-gloss benchtop. And will add dishwasher and new a/c. And add a breakfast bar feature with new downlights.

Thanks for all your feedback and help. Will try to post pics when finished hopefully in 5-6 weeks time.

Regards.

MiQu

 

[Les]

G'day MiQu,

Have decided to put in the new kitchen

Way to go. KnightM made a really good comment that (I think) helps put things in perspective. The extra $1600 (at 8% IO) will set you back $2.50 pw - add another $800 for a dishwasher, and $2500 for a/c, and Interest will be $7.50 per week. But, now, how much more will it rent for? And don't forget the Depreciation that you can now apply that will help with your Tax Returns too. As well as making YOUR property just that bit more attractive to a prospective tenant.

It's all good,

Regards,

 

[Dis]

The extra $1600 (at 8% IO) will set you back $2.50 pw - add another $800 for a dishwasher, and $2500 for a/c, and Interest will be $7.50 per week. But, now, how much more will it rent for? And don't forget the Depreciation that you can now apply that will help with your Tax Returns too. As well as making YOUR property just that bit more attractive to a prospective tenant.


Regards,

I think this is false economics. The increase in rent should cover:
- the interest of the money you borrow / take from your offset or LOC
- the cost of the reno over its lifetime

If it doesn't do this you are losing money, not making money. There are a few intangibles like better quality tenant, less vacancies, etc. If you are planning on selling / refinancing then the better revaluation may also be a factor.

Depreciation is nice but but it simply adds to your cash flow. Its not changing how much you have (in the asset column).

 

[Les]

Fair comment, Dis,

I think this is false economics. The increase in rent should cover:
- the interest of the money you borrow / take from your offset or LOC
- the cost of the reno over its lifetime

If it doesn't do this you are losing money, not making money.

But, let's take it bit-by-bit to avoid confusion:-

The increase in rent should cover:
- the interest of the money you borrow

Yep - the $7.50pw WAS the Interest cost at 8%. I try to keep it simple - (e.g. I don't want to be agonising over CPI effects, Tax Deductions dependent on Income, opportunity costs, costs of setting up loans, RE agent's %age, whatever) but, yes, there may well be other costs, losses, etc. Each to their own... A valid point from you, but "false economics" on my part? Well, I'll leave that to others to decide.

- the cost of the reno over its lifetime

Huh? If you are paying an IO mortgage week-by-week, aren't you COVERING this cost? AND getting a Depreciation to boot? But, if I'm not understanding something here, please help me out....

If it doesn't do this you are losing money, not making money

I have to agree, naturally, that my example was simplistic.

But if someone reads a simple synopsis (like mine), and realises that $7.50 per week (or $8 or $9, whatever) can make them an extra $20 per week in rent, at least it might have turned the light on for them.

What if the $7.50 spent actually costs (after all "hidden costs") $10 per week, but they add $50k to property value, get better tenants more quickly, and take action instead of "putting it off" because of cost - and get $20 pw more than before as rent? I'd say they are ahead. Do you still say it is "false economics"?

To be fair, what other costs would you consider reasonable in such a situation? (i.e. is $10 per week not enough? - up from $7.50)

Regards,

 

[Jacque]

Hey if you can get a kitchen overhauled for a measly $1600 it's a no brainer to me. Just do it!!