Finding ways to maximise the potential of an investment property can be a challenge for new investors. Luckily, plenty can be done to add value to an investment property, it just takes a little experience and a few tips to know what you should be looking for.
The first thing investors should understand is how much they want their property to increase in value, whether they want to do a quick flip or rent the property out for a longer term investment.
Steve Jovcevski, a property investment and lending expert with money saving comparison agency, Mozo, says he wants his investment properties to double in value every ten years.
This is the standard people should have in mind for properties they want to hold onto for some years, says Steve, but investors with a quick flip mentality should “try and increase the value of the property by 15-20%”.
Ultimately, says Steve, whatever money investors put into trying to add value should be returned two to three times.
The real work in getting a good return on investment (ROI) is in the deal struck on the initial purchase of the investment property. This means investors need to have an intimate knowledge of the suburb they are buying in, understanding how much two, three or four bedroom houses are selling for in the suburb, and surrounding suburbs.
“It also pays to buy something around the median price of the area or just under it,” says Steve. “You shouldn’t be looking at anything at the top of the market in the area because that’s always harder to sell.”
Buying at the high end of the market shrinks the pool of potential buyers when it’s time to flip the investment.
According to Steve, before buying any property, investors should get a builder in to assess the cost of renovations that will add value to the property. If the costs of renovations are too high, it might not be the right investment.
The easiest renovations, requiring the least bureaucracy and effort but with the best bang for their buck, are those that can happen under the current floor plan.
And, the best of these that adds tremendous value is creating an additional bedroom.
Steve says, terrace houses are great for this because “There’s quite often a lounge area at the front that can be converted into a bedroom and from a rental perspective that’s going to increase your rent by a couple of hundred dollars – at least – a week”.
When it comes to selling the house with an additional bedroom, investors might be able to add $100,000 just by putting up a new wall for a few thousand dollars, depending on the area.
There’s also the possibility of creating an attic room, Steve says, even though the cost of a staircase and making the building structurally sound could be high, the potential returns for adding a whole other level could be worth it.
“The other one I’d suggest is updating your kitchen. It’s the heart of the home, it’s one of the most important rooms when it comes to maximising the resale value of a property. And, it can increase the value of the property by 5%,” says Steve.
National Research Manager at PRDnationwide, Dr Diaswati Mardiasmo is always monitoring property investor and consumer trends. She’s found that renovated and additional bathrooms provide great ROI for rentals, particularly if they are share houses.
Pools and extensions are big winners, she says, though it means going off the floor plan. However, the real emerging trend she’s identified is in sustainability features, such as solar panels and water tanks.
When it comes to buying property, Dr Mardiasmo says, according to recent research by PRDnationwide: “On average, people are willing to spend about 30% more when a property ticks a lot of sustainability boxes.”
Investors should also consider adding value by putting in a granny flat, garage, parking space, or subdividing the land.
And if investors don’t have the time or inclination to go through all these renovations or add-ons, Steve suggests simply acquiring development approval from the required authorities will increase the value, because the next investor will know what’s possible.
The big ticket items will certainly give investors huge returns, but they’ll all take a little time. Dr Diaswati Mardiasmo and Steve Jovcevski both have some tips for increasing the value of a property in the short term.
Dr Mardiasmo says the simple luxuries making life easy for tenants are always going to make the property more attractive and potentially add value: “A lot of people are loving updated kitchen appliances. It is interesting that there are still rental places that don’t have things like a dishwasher.”
She says an emerging trend is a space to grow veggies or herb gardens: “People are really starting to get into the whole green groove, if you can make your place look like there’s great sunlight, whether it’s on the balcony, the terrace, or something along those lines that’s an added bonus.”
Steve says brightening the place up with natural light is a big help in attracting renters and buyers. He suggests installing skylights, enlarging windows or even just painting rooms with lighter colours as options.
A lick of paint on the exterior as well cannot be underestimated and Steve even suggests painting the front door a bright colour to make it stand out on the street.
While investors are working on the outside of the property, giving the garden some attention is an excellent way to enhance first impressions and maximise the potential of the property.
Finally, Steve offers that just making sure all the maintenance needs are attended to. This means everything from changing out light bulbs to cleaning out the gutters and fixing leaking toilets.
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