Renovate or not

One of my IPs in inner east of ADL is looking pretty tired... It's 60s built house with 850sqm of land, renovated may be 20 years ago. It's still structurally sound but the kitchen especially is looking tired with wooden bench top, old sink. I painted the walls in kitchen last year due to previous tenants not maintaining it well enough with lots of oily grissy walls... Living areas and bedrooms are floor boards which are still ok... bedroom wardrobes are old but still usable i guess...

Should I renovate it or not? It's renting out as $460 per week.... I'd probably going to hold on to it for another 5, 6 years. Should I just let it go wearing and tearing till it's unlivable and do a bulk renovation or is it wiser to do a little bit of light renovation every couple years? Keen to hear what other experienced landlords do?

Also do you guys usually renovate before selling or sell as it is? What i have seen in reality is different than what agents told me. A few agents told me don't renovate, sell the land value so the buyers can do whatever they want with the block, i.e. renovate or knock it down. But almost all sales I came through, i found old block not selling better than renovated block. It seems like ADL buyers are more buying for own living so they want something new and don't mind paying premium for it. Many old blocks selling at "land value" didn't seem to impress me with the sold figure, in fact they looked pretty depressing.

 

No do it all at once if you are going to flick it in 5 years.

 

There are several factors that affect the sale value of a house.
Age of property
Land size
Equivalent building area

All above are used as comparables to establish a valuation.

When comparing properties with similar land size, age and equivalent building area, the one that looks the nicest will achieve the maximum price for its size.

Some areas can hold an upper value for renovated properties more than others.

So - yes it is definitely worth renovating before selling.

Also worth renovating to attract a better quality tenant and better rental yield.

If you already have a tenant I would suggest a Reno in between tenancies.

I'm a huge advocate for keeping properties looking good and gaining maximum benefits from your investment.

You can also get a quantity surveyor in to write off everything in there now, renovate and start a new depreciation schedule for the renovated condition.

Tenants trash properties more when they are already trashed. It's also so much easier to keep tenants accountable to looking after properties if they were in a good condition to begin with.

My suggestion - renovate.

 

I would say, which stage of your investment career are you?

Are you:

1. Accumulating - I would use those funds to accumulate more properties. That $30,000 could be 50% deposit for another property. In a few year's time I am sure your overall position would be much stronger with another property as opposed to one property that's nicely renovated. Land goes up and buildings depreciate so if you still growing, try to buy more.

2. Consolidating - if you are done with the acquiring phase and looking to consolidate and improve cashflow then I would do the bare minimum renovation. The key question to ask when renovating is - 'will this dollar in renovation bring an increase in rental return?'

3. Cashing in - It doesn't sound like you are, but if this was the case I would do a much nicer renovation, then just flick it. The key question here is 'will this dollar in renovation bring a potential higher sale price?'

Above all, tie this into your end goal. Does the renovation get you closer or further away from your goal?

Hope this helps,
Michael

 

If you're still in accumulation stage I'd rather put those funds towards more assets. Gross asset pool is what you want want to be riding when the growth wave comes in.

If you're putting that property on the market, or you've stepped off the accumulation accelerator, or you've ran out of deposits, then renovate as this will give you higher sale price or equity to play with (or use as buffer)

 

Thanks Xenia, I think if I were to spend to renovate, it would likely be a cosmetic make over so that my rent would not drop. The lease ends in end of next year, however I found the one of the house mates who wanted to take over the lease from the main leaser (since main leaser wants to move out) actually smokes in his bedroom, I am sort of wondering should i just let it be or end his lease and find a new one. I think I would probably just let it be...

There are things that you just can't control. I'd probably repaint the bedroom and put in new carpet and new kitchen when the lease ends? The thing is if it would be quite hard to get it leased out with current conditions, unless i stick to students as i am currently, who don't maintain them better than family homes.

 

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There are some renovations that you can delay, and some you can't.

As someone said above, it depends upon you timeframes. If you are planning on a short term hold and flip, your strategy of do nothing until you sell makes sense.

However, if this property is a long term hold......you have to stage your renovations.

My philosophy is to not expect anyone to live in conditions that I wouldn't think are reasonable for myself.

Renovations are a write off........and a must you must plan for them, based on your finances as well as your strategy, ie short term flip or long term hold.......or alternatively, you can do nothing and say to yourself and be ok with your decision that you willing to accept less than market value when sold and let renovations be someone else's problem.

Things just naturally fall apart through age and wear and tear.

You have to ask yourself, are you willing to do nothing in the short term....and also be ok with accepting a lower rental premium because you and everyone else knows that your property needs work.

Ultimately, it's about your goal. What are you trying to achieve by not staging your renovations within your financial means and planning.

 

Thanks Michael_X, very useful advice. Oh well, I was thinking of accumulating but with current heating market, i really doubt I want to buy at current peak time. I mean i could easily draw out money from current loan and get additional ones, but then with expensive stamp duty and through the roof price tag, i doubt if it's a wise decision.

 

I guess depends on where you are buying. If the market is heating up and the numbers don't work, just move on.

Plenty of markets in Australia.

Cheers,
Michael

 

I wonder what most investors do... i.e. what sort of percentage margin of loan do they pay off before they start accumulating more.

 

Never paid any off here

 

Haha. Yeah, i thought about acquiring more in ADL but then with expensive stamp duty and slow growth rate, i just can't be any hopeful. Unless ADL can have at least 7% - 10% kind of growth rate as in SYD and MELB...