Renovating during this time of a cycle

[IFBB]

Tenant is moving out in a few weeks, and the place is due for a freshen up.

Would it be a sensible move to spend that bit more money and go the next level, instead of just a simple paint and clean?

Looking for new floors, paint, and fixing up all fittings etc with a small reno of the kitchen.

Not sure if i should just give it a quick coat of paint and throw some carpet in there and just wait and see what happens with the market, or to spend more and get more work done/higher quality grade of stuff.

The market i am in does have a fair few younger families in, so im guessing that it could be worth going that "extra mile" with it.

Lastly, would you use funds from your offset, or borrow more?

 

[DaveM]

What do comparable properties rent for vs what you are currently getting?
What change is there to your gross yield?
How long will it take to get your $ back based on the new rental income?

 

[Aaron_C]

I don't think renovations necessarily increase the rent per se, what they do is make it easier to rent out so you have less vacancy.

 

[IFBB]

Im currently getting $200p/w, and the place has old ripped carpets, dirty walls/kitchen and basically non-existant blinds.

Will be putting in new flooring, paint, new light fittings, blinds, and a tidy up of the kitchen. I have friends who own one in the group who rent for $260, but they have put in a new kitchen/bathroom, where i will be putting new doors/tiles to tidy up. Thinking $230 would be a bare minimum, but i may call the property manager to see what she thinks is fare. Luckily for me my friend owns 4/10 in the group, so i can ask what comparable rents are going for.

Other than the rent, i posted this question because im was unsure if a reno would add similar value to an IP in a slow moving market, compared to a boom market.

 

[Jamie M]

Our first IP was an old unit and we spent about $2,500 all up on new paint, kitchen, few little additions to the bathroom. The rent went from $220p.w to $280 p.w

Cheers

Jamie

 

[Propertunity]

Other than the rent, i posted this question because im was unsure if a reno would add similar value to an IP in a slow moving market, compared to a boom market.

In a boom market, many people make the mistake of thinking that their reno was totally responsible for the extra value added to the property, when in reality, a much gretaer % was due to the market alone.

In a flat or slow moving market, you really have to be careful that you don't overcapitalise or take too much time to get in and get out and have it rented. This kind of market is the best test for your reno value-adding abilities.

What you don't want to be doing is renovating in a falling market, where the place is worth less at reno's end than you have spent all up.

A well planned, costed and executed reno not only adds value to the property but you also get a comensurate increase in rental.

 

[Jacque]

Agree with Prop here- a good reno can add value and increase return. I've seen many examples here with both clients and in my own transactions. Also keep in mind that increased depreciation assists in cashflow and tenants generally will pay more for "shiny and new". Other upside is that condition reports are much easier to dispute when they've been the first to move in to a renovated place with new appliances and kitchens etc.

 

[IFBB]

Thanks guys.

Im looking to spend around $7000, and that will be for vinyl plank flooring (more expensive, but its what i have at home, and should last the test of time as opposed to vinyl or timber).

The market here in SA i havent seen move too much apart from the top end. My unit is fringe eastern suburbs, next to the o-bahn, shopping centre, and a walking trail, with a bus stop out the front and about 9-10km from cbd. I think it has those fundamentals covered, so hopefully there is some demand there.

Im not looking to sell anytime soon as i plan on holding this long-term.

Guess im just a little nervous undertaking my first reno, and some words of advice for more experienced people in the field does put my mind at ease a little bit haha.

 

[DaveM]

In a boom market, many people make the mistake of thinking that their reno was totally responsible for the extra value added to the property, when in reality, a much gretaer % was due to the market alone.

You sound like Sarah Beeney

 

[Propertunity]

You sound like Sarah Beeney

I had to google her to find out whether that was a good thing or a bad thing, never having heard of her before.

 

[DaveM]

I had to google her to find out whether that was a good thing or a bad thing, never having heard of her before.

LOL. On Property Ladder she often makes the comment that in a rising market, the "profit" people make from property reno's is due mostly from the increasing values of the housing around them.

Often she points out that they could have made the same amount of money havinig not done anything at all the house.

 

[AdamN]

Lastly, would you use funds from your offset, or borrow more?

From a cost (interest) perspective I don't see any difference.

		Now		Borrow 20K	20K from offset
Interest Rate	7%		7%		7%
Loan		500		520		500
Offset		200		200		180
Balance		300		320		320
Interest Amount	21		22.4		22.4