Percentage cost of reno vs rent increase

[sailor]

I've just had 2 units vacated after several year occupancies. Bought both units in the past 2 years, with existing long term tenants. So I decided as neither unit had been painted (and there are some serious peeling problems) or re-curtained (they were falling to bits) in over 10 years, it was time to do some cosmetic renos, so that I could increase the rent.

My questions are:

1. How much to increase the rent, given the amount of money I'm using to add value? Or does this depend soley on median rentals for like IP's?
2. How much to spend on a reno, before it becomes overcapitalised in terms of CF?
3. How much time do people estimate it will take to get a return on a reno-investment?

 

[marg4000]

I would approach this from the other end, so to speak.

Get a few PMs to inspect the units as is, then run through with them various scenarios and how much extra rent each would attract. That way you can choose to do improvements that will gain the most extra rent for you.

Painting and new window coverings to give the whole unit a lift are often recommended as the very best "value for money" reno

I would suggest considering:
air conditioning?
dishwasher (even a mobile one)?

A local PM should have the best idea of what tenants look for, and even more importantly, are prepared to pay extra for.

Once you have the target rent in view, you can then work out how much it is economical to spend, bearing in mind that after 10 years the painting and curtains etc would be considered a repair, and also any extra depreciation you will be able to claim.
Marg

 

[wylie]

By the sounds of your particular units, I would not really think in terms of how much extra rent you can get. I would be painting and putting up new curtains in order to get the best rent you can. If you re-let them "as is" you would not be getting the best rent as the units would be compared unfavourably with others that are less shabby by prospective tenants.

Paint and curtains are the cheapest ways of increasing the rent available, and I know that you already know that, so not being condescending at all.

We always re-curtain between tenancies (unless there is no need). I usually buy good value curtains (eyelet curtains usually) on ebay and have a stock on hand for changeovers, so this is very cheap for me. Painting is done by me so it is only my time. So both these improvements are very cheap for me.

Of course, if you are paying someone to paint, that is still a really cheap way to maximise your rental return.

Anything other than that (dishwasher, air-con, deck) we tend to look at covering the interest that the item costs us, ie. it actually doesn't take anything out of our pockets.

 

[sailor]

I would approach this from the other end, so to speak.

Get a few PMs to inspect the units as is, then run through with them various scenarios and how much extra rent each would attract. That way you can choose to do improvements that will gain the most extra rent for you.
Yes, I went through my list of renos with the PM, and she agreed they were basic fixes. I've also had to replace door closers which were somehow missing, get the security screens serviced (the sliders were really bumpy and noisy, plus replacing door knobs on cuboards which were once painted and now scratchy. Bunnings had nice new ones for $2, happy with that.

Painting and new window coverings to give the whole unit a lift are often recommended as the very best "value for money" reno

I would suggest considering:
air conditioning?
dishwasher (even a mobile one)?
They both have aircon, but I really can't afford to put in dishwashers, without pulling out kitchen cupboards. However, that is a great idea for what to spend the future rental income on. Thankyou.

A local PM should have the best idea of what tenants look for, and even more importantly, are prepared to pay extra for.

Once you have the target rent in view, you can then work out how much it is economical to spend, bearing in mind that after 10 years the painting and curtains etc would be considered a repair, and also any extra depreciation you will be able to claim.
Marg

Good point about the tax deductions...love it.

 

[sailor]

Anything other than that (dishwasher, air-con, deck) we tend to look at covering the interest that the item costs us, ie. it actually doesn't take anything out of our pockets.

So if you spent $1000 on installing a dishwasher, you'd be looking at putting up the rent $10pw (if the interest rate was 10% pa for borrowing the $1K for the dishwasher)?

 

[wylie]

That is right. However, we tend to add things like air-con and dishwashers towards the finish of one tenancy so that it is ready for the next and we then increase the asking rent. We have never actually installed air-con or dishwasher and increased the rent for those tenants.

We had one lot of tenants a year ago who moved into one house while their house in the same street was being renovated. We asked them if they were prepared to pay the extra $10 for air-con and they said no. We waited and had it installed when they left, ready for the next tenants and asked (and got) more. Rents had risen anyway, but we got more and rented it much more easily (in my opinion) than without the dishwasher.

 

[Tizzy]

Thats very interesting about the $10gain to $1000 cost with the dishwasher. Thanks for sharing Wylie. I thought I couldn't afford to connect the dishwashers but maybe I should reconsider with that reasoning.

 

[kristaje]

We recently prettied-up our IP and got a rent increase of $200/w - which was a pleasant surprise. I think much of it was probably because of the rent tightening in the area, but it's still pretty nice to get the extra $$$.

What we did was:
- add a new room under current roof (add a couple of gyprock walls and a door)
- paint inside and front of house
- spray clean deck, side & back of house
- oil deck
- polish floor
- put in nice colourful fireplace (a steal fron eBay)
- change light fittings
- add small outdoor setting (a small table & 2 bamboo chairs)
- tidy-up front and back gardens

Hope these helps.

 

[wylie]

Kristaje, I would be interested to know if your rent prior to doing the reno was under market, as $200 per week is a BIG jump for that amount of work, notwithstanding an extra room (bedroom or living room?).

 

[kristaje]

Hi Wylie,

The old rent was under the market value, but not by as much as we're quoted $25/w more than the old rent by a PM before we started the reno. I think the increase is more due to the combination of:
- additional bedroom (it was only 1 BR before)
- rent tightening around the area
- improvement in the general look of the property - it has overgrown gardens before and looked worn and 'tired'

Also we allow the couple who rent it to bring their dog. They actually offered to pay $20/w more for that 'privilege'...not that we'd mind as the place is fully floor board and they promised to do the pest thingy at the end of the lease.

 

[kristaje]

Hi Sailor,

Just noticed the questions you asked there (doh!). I still have a lot to learn re. property investing, but below are things that we did that we found quite useful, so hope they're useful to you too.

1. How much to increase the rent, given the amount of money I'm using to add value? Or does this depend soley on median rentals for like IP's?

I'd suggest inviting your PM first before starting the reno, to get an idea of what's increase is achievable. Also they'll be a good source for idea on what the market likes, what reno will has biggest impact to rental price, etc. We actually get the idea of adding a bedroom from a PM.

2. How much to spend on a reno, before it becomes overcapitalised in terms of CF?

We tried to limit the reno to high-impact items only. Like things that can definitely increase rent price (like additional bedroom under existing roof - if this is possible) and things that make the property looks nice-to-live-in (rather than just habitable). For us this means sparkling clean in/outside, new curtains, polished floor boards & deck, etc.

I think how far to go with reno will also depend on the area/renter profile too. If it's a trendy area full of yuppies who don't mind to pay a bit more for nice modern property, it maybe worthwhile to get a nice stainless-steel appliances rather than basic one, for example. It maybe $1000 more to buy the appliances, but can give you $20/w more in rental, plus you can depreciate it.

3. How much time do people estimate it will take to get a return on a reno-investment?

As down-time = cost, try to limit the reno time to high-impact ones. Like painting, cleaning, polishing, etc. Our reno mentioned above takes around 4 weeks in total, could be faster I guess, but it's hard getting tradies time lately.

Jen

 

[Cartoon]

i know its a little off topic but how do these things affect the value of your property if any at all.

Im looking at doing the following to my place
paint, curtains, replacing the carpet with a floating floor, a/c
freeing up some room in the bathroom with a bifold
new vanity, taps, bench top is allso an option. bench doors as well.

currently im getting 150 for my place which is a little run down but that would be 10-20 under market.
i have been told i can get a possible 230 or so with the right renos but i was also wondering how this would affect hte value of my place.

 

[skater]

i know its a little off topic but how do these things affect the value of your property if any at all.

Im looking at doing the following to my place
paint, curtains, replacing the carpet with a floating floor, a/c
freeing up some room in the bathroom with a bifold
new vanity, taps, bench top is allso an option. bench doors as well.

currently im getting 150 for my place which is a little run down but that would be 10-20 under market.
i have been told i can get a possible 230 or so with the right renos but i was also wondering how this would affect hte value of my place.

If you are the forumite I remember reading about, who bought the villa in Western Sydney, well, as I recall you got it for a good price. By tidying it up & giving it a paint job, you will be surprised by the difference, both in the valuation & the rental yeild. I would not be surprised if you could get a yeild of $230pw, & you could probably do it for little outlay.

 

[Cartoon]

If you are the forumite I remember reading about, who bought the villa in Western Sydney, well, as I recall you got it for a good price. By tidying it up & giving it a paint job, you will be surprised by the difference, both in the valuation & the rental yeild. I would not be surprised if you could get a yeild of $230pw, & you could probably do it for little outlay.

yeah skater thats me
found the next place i want to buy but i have little equ. or savings after buying this one its a house with a bad colour choice and some reno's to be done that i can get away with cheaply

might have to harass the parents.

Thanks for the input

 

[kristaje]

i know its a little off topic but how do these things affect the value of your property if any at all.

Im looking at doing the following to my place
paint, curtains, replacing the carpet with a floating floor, a/c
freeing up some room in the bathroom with a bifold
new vanity, taps, bench top is allso an option. bench doors as well.

currently im getting 150 for my place which is a little run down but that would be 10-20 under market.
i have been told i can get a possible 230 or so with the right renos but i was also wondering how this would affect hte value of my place.

Hi Cartoon,

As Skater mentioned renos can add value in several ways:
- Increased valuation of your property
- Increased rental yield, which usually increase the valuation of property as well. I think there is a rule-of-thumb for the capitalisation, something like $10/w increase = $520/y increase = $5200 increase in valuation (assuming 10% rate).

Jen

 

[skater]

yeah skater thats me
found the next place i want to buy but i have little equ. or savings after buying this one its a house with a bad colour choice and some reno's to be done that i can get away with cheaply

LOL! There are a few with "interesting" colour schemes out this way. There is the adorable lime green creation just off the highway at Colyton. Then there is the yellow with purple trim I saw at Mt Druitt. Another nice one was next to me it used to be aqua green with royal blue trim. It's just been painted grey.