To Reno Or Not To Reno, that is the question?

[flaxmac]

Hi All,
I would like to hear some different points of view about the Reno question.
I have just bought a Ground floor 2 Bed 1 bath apartment in Neutral Bay, $559K.
Advised that it could rent for about $540 to $550 pw as is.
Two others in the same building that have been fully renovated, (Paint, Carpet, Kitchen and Bathroom) on upper levels (1 & 2) advertised for rent for $580 and $585 pw. Across the street 1st floor renovated 2 Bed 1 bath apartment advertised for rent for $575 pw.

Option 1: Do nothing - accept a rent of $540 pw. I may be able to find a tenant faster because of the cheaper rent.

Option 2: Just light reno - Paint ($2K) and flooring ($3K) (carpet or floating floorboards). Probably guarantee a rent of $550 pw.

Option 3: Full Reno - Paint ($2K), flooring ($3K), Bathroom ($6K), Kitchen ($9K). May rent for $570 - $580 pw.

Option 2 would see me spend $5K to get an extra $10 pw.
Option 3 would see me spend $20K to get an extra $40 pw.

I understand doing something like this to increase the value of the home, for when you want to refinance and buy another IP, but why would I do it now?

Would I be better off, leaving the money in an offset account to keep the repayments lower?

All constructive thoughts appreciated.
Thanks.

 

[Melbournian]

do option 1: if you are just after rental and less headaches.

Do the other options if you looking to this place valued to get some equity.

 

[depreciator]

Don't forget to factor in the loss of rent while you are fiddling with it.

If spending $5,000 or so is only going to get an extra 410pw, I'd be renting it out ASAP as is.

 

[vaughan]

Re-paint inside, and put in polished floors if possible. Shiny timber looks s-o-o-o nice and adds a lot of value IMHO.

Check with strata first, before installing the hard floor.

Speaking of which, what are the strata fees for the unit?

 

[flaxmac]

Strata fees = $732 pq
Council = $174 pq
Water = $156 pq

 

[travelbug]

Not a huige difference in rent. I'd paint though, unless it looks fresh and new. This will attract tenants, takes a weekend and is cheap.

Sure it will increase the value but if you don't need to reval I'd leave it a while. If a tenant moves out and situations change, do it then.

 

[Scott No Mates]

Any work you do before you rent it out will be capitalised as you have bought something that needs work. If you have a short lease, then it becomes maintenance.

Check out what the rentals in the area actually get, how long they sit on the market - price is everything (waiting an extra 3-4 weeks to get $20 more is $1750+ in lost revenue and even more when you add holding costs).

 

[depreciator]

If you have a short lease, then it becomes maintenance.

Not necessarily.

 

[MIZBUF]

Fax mac You seem to have found a good buy there -Congrats! In this weeks Mosman daily seem there are no 2 bedders in Neutral Bay for under $600k- As to renos- I'd be inclined to get it rented ASAP as we are coming into the quiet time over late Dec early Jan- Also if you just do a bit of reno when U come to do a more complete reno e.g kitchen it usually means that your earlier work gets wrecked especially if you get subbies in They don't care about anything except the bit of work they are getting paid for.

 

[flaxmac]

Thanks Mizbuf,
I am pretty confident we have not overpaid for this property (has parking), and the strata doesn't seem to excessive. (at the moment)
I know the rent is not in the high yields people often talk about on this forum.
$559K rent $540 = 5% yield, but the strata is lower than most, no lifts no gym no pool.
I think the capital growth in Neutral Bay will always be pretty strong.
Also the quality of tenant should be better too.

I think I will just do the Paint, then after 2 years when I am ready to do a re-valuation I will put floating floors in.

Thanks for all the responses.