Learn How To Make A Profit Renovating Rental Properties.
Making a profit renovating a property sounds attractive, which is why property investors are looking to add value to their bricks and mortar investment property for higher rent returns and increased capital value.
You can throw money into renovations. Many people believe they’ll be able to make a profit by buying a run down house, renovating it then selling for a profit.
This approach, as many people have found does not take into account capital gains tax, or the stamp duty on the property. Unless you’re doing major structural renovations or undertake a complete property redevelopment, you simply won’t make a big enough profit to make it worth while once you’ve finished.
If, however you renovate with the intention to rent the house out, you stand to retain all the benefits you’ve created in the renovation.
Salvan Property Managers hope the following information on renovating rental properties will make your renovation and property investment even more profitable and be enjoyable, as the process should be as well.
Is Renovating During 2021 A Good Idea?
The answer is yes! Even more so now, not withstanding the disruption COVID is having on our day to day lives, given that the cost of borrowing money has never been cheaper. With record low interest rates, plus high demand for good quality rental properties across Adelaide due to a shortage, now and over the next couple of years is an ideal time to renovate.
Please Note: Before borrowing money or looking at tax implications, you should consult your accountant or professional financial advisor.
The Buy, Renovate, Rent Out, Refinance Then Repeat Strategy
So you’ve bought a property that you plan to rent out. Congratulations! You’re now a landlord, or here at Salvan, you’ve become a property investor.
Often first time investment property purchases are at the lower end of the market, but everyone has to start somewhere. So why renovate?
The benefits of renovating rental properties include:
- Lower vacancy time. As your refurbished property is now more attractive to a wider range of potential tenants, more quality applicants will be keen to apply.
- Higher rental returns. Receive higher rental payments as your newly improved asset with modern appointments, fixtures, fittings and appliances shines against other properties for rent available within the same suburb.
- Depreciation benefits. Second-hand properties may attract fewer deprecation claims since the 2017 Federal Budget, but once you renovate you gain the tax benefit of extra depreciation allowances.
- Manufactured Capital Growth. Using this strategy, you are effectively building your asset base, creating capital growth and increasing your overall wealth.
Budget & Plan For A Successful Renovation
As a guide, but it will depend on the condition of your dwelling compared to what’s surrounding it, you should be fairly safe if your renovation budget is about 10% of the property value.
Know before you start how long your renovation will take, as every day will cost you money at a time when no rent is coming in. It’s also very important not to become emotionally involved and over capitalise.
There is no formulae between what you spend and how much value you add. Many hidden improvements such as re-wiring or fixing plumbing leaks don’t add much value at all, but are worth doing at the time to save you costs further down the track. Low voltage lighting, kitchen benchtops and cupboards, appliances such as a dishwasher, will all attract tenants willing to pay to have a more modern place to live.
One appointment or feature of a home rented out is surprisingly overlooked and that’s effective heating and cooling. Reverse cycle air conditioners are always looked for, and if the house has gas, a gas wall furnace with refrigerated air conditioning will attract many more quality tenants.
Property managers from Salvan Property Management are always on hand to help guide you, with substantial knowledge of what the market will expect and what increased rental payments you can expect from your improved investment.
If and only if you have the skills and experience should you do some of the work yourself. Home DIY improvements will look that way to objective tenants and future buyers. You should instead look at becoming the project manager.
Write down what you require completed then obtain 3 quotes for each aspect of the project to make sure you’re getting the most from your money. Remember too, the cheapest may be cheap for a reason, especially if it’s a lot cheaper than the 2 others!
You may also require council approval for any structural changes, moving plumbing or increasing the overall living floor area. These days, even placing a rubbish skip on the verge requires a permit for most councils.
If council approval will be required, you’ll need documentation and plans to submit.
Sometimes it can be cheaper overall if you supply appliances and materials for the project. Discuss this with the tradespeople, because they often buy with a trade discount, making the time you’ll spend running around not worth the trouble.
A fresh coat of neutral coloured paint will make a difference, as will new flooring such as polished boards or vinyl planks and can often make a tired property look like new. Security doors are always welcome by tenants, especially with women and children.
Sometimes, the small things get noticed like door furniture, cupboard handles and taps. There is minimal dollar cost between something really cheap and something that can look quite expensive.
As project manager, you need to make sure of the order all works are done and whether several trades can work together at the same time is practical.
Landscaping is often forgotten, but really shouldn’t be. Low maintenance gardens attract good tenants while adding value to the property. Pop up sprinklers for the lawn (Male Sterile Kikuyu is tough and drought tolerant) areas with subsurface irrigation drip lines on a timer can make sure all plants are watered cost effectively.
Once you’re finished, discuss with your property manager what’s been updated, so they can place your property back on the market, available to rent at the new price per week.
Now too may be the time to look at purchasing your second investment property!
Natalie Salvati (Principal of Salvan Property Management) is a registered Real Estate Agent (RLA 276287) with over 20 years experience in the property management market, looking after metropolitan Adelaide landlords, or as we like to say ‘property investors’.