Overcapitalisation

From: Adam Randall


Hello
I have a months worth of holidays coming up and if I use it going to Thailand I might not come back, so I will be doing some renovating around one of my rental properties.
I have 2 choices 1) Pave around the pool area and create a water feature, along with a few other improvements I won't go into. This little project will be in the order of $5000 to complete, however it will reduce maintenance (no lawn).

Choice 2) Get rid of the awful mission brown paint that coats every dead bit of wood within a 50SQM radius of the house (replace with heritage green/cream combo), shelter all the decks (3) from the elements, and update all fence palings with something that does not remind you of the Brady Bunch era. Total cost will be about $5000 as well.

The house is valued at about 320K and I get about 400 week rent. I would be interested in hearing which project people here would pick, and why, I could be swayed either way at this stage, I am always cautious of overcapitalizing which leads me on to another question $45 per square meter for outdoor sandstone vs $31 from another company the expensive one looks nicer, and am told can withstand a direct atomic detonation, however thats a difference of $1000 taking into consideration the area I will be paving. My question Is, Is it worth it?
Regards Adam
 
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Reply: 1
From: Owen .


The only answer I can give regarding the options is what difference will it make to your rent and capital gain? I also have an idea regarding your last question.

What does a QS value paving at per square metre? If you take the cheaper paving option (that will only last the use of tenant instead of atomic war), can your depreciation schedule depreciate the extra $1000 for you? So spend $2000 on paving and claim $3000 because that's what a QS values it at. This also sets the value of the renovation you have done (compared to what it actually cost) which is the starting point for the new valuation.

Just my 2.2c
 
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From: Steve G


Hi Adam!

If you are going to be away for some time, I would be asking myself "which of the projects is going to save me the most in maintenance over the time?".

As capital costs are similar, I'd go with that one, because it will not only save money, but probably management headaches as well!

Steve G
 
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