Reasons for renovating

Why these differ for the property investor and the live-in homeowner.

When markets soften, some investors try to stay away from selling or adding to their portfolio, opting instead to add value through renovation.

Factoring the slowed growth coming off a peak period- such as in parts of Sydney, Melbourne and Auckland – a lot of people, both investors and owner-occupiers, are choosing to refurbish and renovate.

Investors, it’s worth remembering that spending money without significant immediate return may put a dent in your cash flow, especially if it requires the property being untenanted for any period.

There is a difference between renovating as an investor and as a homeowner.

While renovating your own home is considered a safe strategy regardless of the market, renovating an investment property should be approached strategically with careful planning.

Apart from generally making a property more liveable, renovations may add capital value to an asset. In both ways, there is potential for better return. You can potentially: 1. Increase the capital, 2. Attract a better-quality tenant and 3. Increase your rental return.

Vacancy rates tend to increase in a softening market, so you want to make your property more attractive because the aim is to hold those properties long-term and hold good tenants.

Also, if you are getting a valuation on your investment property for the purpose of borrowing more funds, a bit of a spruce up can present a property in a much better light.

It is well-accepted that some renovations can add more value than others.

However, despite us having differing tastes, most of us desire a similar level of comfort and convenience so renovating to achieve functional kitchens and bathrooms as well as giving storage capacity is a wise choice. Updating kitchens and bathrooms might be as straightforward as installing new granite bench tops, replacing old appliances and fittings, or adding smart new shelving.

Painting the interior with contemporary yet neutral shades, such as variations of white, has the capacity to freshen up every room as well as make them appear larger. And peeling exterior paint is a sure-fire way to strip dollars from the property’s value and appeal.

A bit of good landscaping goes a long way when it comes to creating good first impressions.

The last thing you want to do when renovating is to over-capitalise.

This is often more of a problem for homeowners who might get carried away with emotion than for investors who are carefully watching expenses.

It’s the structural renovations, like adding decks, knocking down walls and expanding with new rooms, where the outgoing dollars can quickly go through the roof.

You often hear renovators say that they have no intention of selling, or they express confidence that rising values in the local market are sure to make up the difference in price. However, in a worst-case scenario, such as job loss or sudden illness, the homeowner might end up with a property that owes them far more than they are likely to get if they had to sell it.

Renovating is popular because people like the idea of working on their properties to improve their futures. Success comes through knowing which renovations are the smartest, and which ones you should avoid.

Good advice BEFORE you begin:

• Analyse your property: location, buyer demographic, market value, size and style.

• Ask the experts: Is there a market for the fully renovated or the ‘gems to renovate’?