As a landlord, you’re always looking for ways to maximise the return on your investment.
Renovating your property can be one of them! However, there are a few things to keep in mind before deciding to give your property a bit of sprucing up. We’ve broken down the pros and cons of renovating from an investment perspective so you can decide whether renovating is the right way to go.
1. Higher asking price for rent
It makes sense for investors to spend money on existing assets to increase rental return, particularly in the current low interest environment. Even simple renovations can boost the value of your property and allow you to increase the asking rental price. This means more money in your pocket each month.
2. Create equity through an increase in rental yields
Higher cash flow properties will help build up the equity in your investment property, making it easier to acquire more investments and expand your property portfolio.
3. Attract a better quality tenant
Quality tenants are more inclined to show interest in a property of higher calibre and certainly drives competition. Any landlord knows that having a great tenant can save major headaches over time. Securing a quality tenant means longer rental terms and reduction in prolonged vacancies, and less potential for repair and maintenance issues arising.
4. Capital growth
Renovating your investment is a great way to boost your property’s value alongside its appreciation over time. At a time when the property market is hot and increasing at alarming rates, conducting even minor renovations can serve to accelerate capital growth fast. Additionally if your property is already being rented out, expenses associated with upgrades may become deductible.
5. Adding to your professional network
Building relationships with local tradespeople is incredibly valuable for a self-managed landlord in the long term. Having tradies you can trust to do quality works on your investment property ensures you avoid being left behind with dodgy works when maintenance issues arise.
6. Sense of accomplishment
Aside from the financial benefits that come with renovating your investment property, looking back on a completed project brings a sense of achievement. Taking care of your assets is incredibly rewarding.
1. Lost rental income while you renovate
This depends on the scale of the renovation, but if you are planning to undertake larger works then you may have to wait until the renovations are complete before receiving rental income again. It’s important to keep in mind that unexpected difficulties can arise through large-scale renovations, and they may not always go to plan. However, smaller upgrades may be possible while your tenant is living in the property, such as applying a fresh coat of paint, installing air conditioning or a dishwasher, replacing faucets in the bathroom or even regular garden maintenance.
2. Building costs can spiral out of control
Just as unexpected issues can pop up during renovations, the costs associated with them can also creep up and up. It’s important to carefully manage the renovation process, have a clear budget and stick to it.
3. Loss of depreciation value of items at tax time
Throwing out old appliances from your investment property may mean losing the potential depreciation value that those items will have accrued at tax time. It may be necessary to get a depreciation schedule before renovating to keep track of items worth claiming.
4. Can be time consuming
Renovations can be very unpredictable and take up a lot of time, especially if you’re planning to manage it closely. It’s important to make sure you have the time to oversee the process, particularly for large-scale projects.
At the end of the day, it’s important to weigh up the costs as well as the expected benefits to be achieved through renovating your investment property. Make sure you plan ahead, have a specific budget in place, and seek advice from your accountant or financial advisor to determine the best course of action for your investment property.