First IP. Should I spend to make house look modern before renting?

Hi Everyone,

I am settling my first IP mid next week and looking to get some tips on what work should I do on the house before handing the keys to the property manager for sourcing tenants?

A bit about the house -
House in Hoppers Crossing and was built by dano (or danso, i cant recall), apparently good builders during 1980s/90s.
Around 28 Years old. Built - 1989.
4 bedroom, 2 bathroom and 2 car.
Overall the house is in pretty good shape and all appliances work fine.
Carpets are 2 months old.
Has evaporative cooling throughout the house.
1 box shaped air con in the meals area near kitchen.
1 long rectangular shaped wall heater panel in the meals area near kitchen.
Kitchen applicance are 3 years old o

Doesn't have centralised heating.
Has security alarm but the vendors (very old couple) chopped the wires off years back due to false alarm. This security alarm looks very very old and doesn't work now thought i can see the sensor worked fine.
Overall paint is alright. No paint chips but i can see the paint does look old.
All smoke alarm works but looks very old (i am sure they must be 10+years old. They are battery operated).
All the taps, shower work fine but has the old design.

Expected rent given by property managers are approx between $370-$390/week.

My question is - Do i paint the house? Do i change the taps? Should I do any work so that the house look more modern for better rent? Do i get centralised heating installed? Security alarm installed?

Is it worth spending money now before renting?

Looking to get some tips/suggestions regarding this.

 

Hi @afterbudda

If you are going to spend money on an investment property it should be for one of the following reasons:

• To rectify a safety or compliance concern
• To appeal to a more stable quality of tenant
• To fetch more rent
• To generate equity

I would strongly suggest you have the PM send the appropriate tradesperson to update all the smoke detectors so that it's on record as having been done.

If you are looking at items 2 or 3 above, consult the property manager about what things you are thinking of doing and what impact those things would have. For instance, don't bother spending $10k if you are only going to get $5 per week extra rent. The return on investment for such an exercise would be paltry at 100 x $5 x 52 / $10000 = 2.6% which is a worse return than just having money in a savings account with ING.

Also ask the property manager if there are things they feel you should do, and how that would affect achievable rent and quality of tenant.

Don't renovate just for the sake of renovating .

 

Your first port of call is to speak with your PM and what items are in demand by tenants i.e. what are the key items that will make it more attractive to tenants. Many of these things should be done at the purchase stage but now that's done, you have to focus on things you can change. I would suggest that unless it is a crime ridden area, that security alarms do not generally add value on the yield front. Painting however, usually does.

Ask your PM how much more rent you will get for a paint and then simply do the maths. If it's costs you $10,000 to paint for example and you will get an extra $10 per week rent, this is a 5.2% return on capital, prior to depreciation. If your gross yield is only 4% then this is feasible. If your gross return will already be 6% without the paint, then it's not. If you can get $20 per week for paint and it's only going to cost you $7,000 then this is a nearly 15% return on capital and definitely worth it as you will get a tax refund from depreciating the paint job also.

Other minor things can be changes to door/cupboard handles, new taps, new shower screens and if you paint, get tile paint for the bathroom and repaint those too. New vanities are cheap and easy to install by a handyman usually so you can get a very cheap bathroom renovation by simply getting the above done.

Other value add additions (prior to painting) are the removal of older hanging light fittings and having downlights installed. Very cheap and immediately modernise a property.

Smoke alarms will need to be checked as part of compliance and can be done by an electrician as part of your downlights (if you choose to do those) or by a specialised company. Which ever way you go, ensure you get a certificate of compliance when the smoke alarms are done.

Overall, do the maths and work out the return on capital based on your PM's guidance for any rent increase based on planned work. That is the best guidance as to what you should do and will ensure you don't over capitalise. Remember, in a declining rental market your return on capital can diminish by the time the work is done so check vacancy rate trends prior to starting too.

Andrew.

 

Thank you @JacM and @Andrew Hancock. Appreciate the tips. Its amazing to see both of you kind of recommended the same things. I will book some time with the property manager to go an inspect the property first thing next week and get some feedback.

One question - i have got few property management quotes from different PMs. Is it okay to call at least 2-3 PMs to inspect the property and get final rental quotes and feedback on the work that needs to be done and then sign up with one that i am comfortable with?

 

It is definitely okay to vet different property managers and ask questions. However, remember property management is not project management or renovation management. Whilst a PM should be able to direct you to certain features that are more attractive, they should not be expected to be builders/interior designers/project managers etc. Their job is to manage the tenancy first and foremost and items associated with that.

 

How much generally can you add to the rent if you completely repaint it? Does it vary from place to place or is there a general increase?

 

It's a function of supply and demand at the time and the property itself. Sometimes you might need to paint it just to hold the rental amount you have if the market is declining.