Renovate to add values?

My rental incomes are now more than my expenses (interest repayments, council rates, PM fees). Should I use the net income from my properties to renovate to add values? Thank you in advance.

 

Renovating to add value (with the end result that you can access equity and go again) is tricky. If you just do a cheap cosmetic reno, the valuer will pick it a mile off and the valuation will only rise about the same as your spend.

You need to do a lot of research on end values to be sure it's going to be worth it - not all properties are good reno prospects.

 

I would talk to your PM about what may make your ip more attractive to tenants leading to a better rental return. I feel more major renos are for when you decide to sell the property so the reno hopefully attracts a better price.

 

Are your tenants good or do you want to move on from them?

If you are moving on from them anyway then research your market to see how much more an extra bedroom brings in rent. If it's a superficial improvement on a rental then it's probably easy to over-capitalize. If, however, you have a 2 bedroom place and the area is for families then it might be wise to add an extra bedroom if it's reflected by an increase in rent of at least $100 per week. If you don't have a dishwasher then add one. Renters are generally more about function than aesthetic.

Do you have more details about the place?

 

What sort of renovation are you thinking about? Is the property tired and run down, and need a quick paint & freshen up, or are you planning a huge makeover? There's nothing wrong with having a positively geared IP, you know?

 

Thank you for your replies. I appreciate your help. My property is in Liverpool area, Sydney. As I do not want to pay taxes on my rental income, I would like to use that money to build another bedroom, as it is only a two bedroom house and we have some land for that. Is there anything I should be cautious of? Thank you for your help.

 

That in itself won't save you tax, you'll pay more. Some tax saving might come if you're depreciating the new build or borrowing more to build.

You could conduct Repairs & Maintenance where necessary that could be deductible.

I would use the money to pay down your debt in a way that you could take it out again, such as an offset, to purchase another property investment when you have a deposit

 

Yes, the assumption that renovating will somehow reduce your taxable rental income.

And that spending $1 to get back 30-40 cents or so is a good idea financially!

 

Will adding an extra bedroom increase the property value and rental return enough to justify doing it ?

You have "some land for that", so is this a possible future development site ?
As spending to extend today would be wasted if it is knocked down in a few years.........

Take the money, pay some small amount of tax, put it into the offset, save for another deposit, change loans to P&I (if IO), plenty of options

 

Beat me to it.

 

I think an important point to consider is, what "rental yield" are you getting today as compared to the market for your property type in renovated condition. As an example, you may be getting $500 today for your 2 bedroom, but a 3 bedroom in your area may be $550/$600 so you need to consider that.

I'd also speak with your accountant - if it's your objective to save tax, you may want to discuss with your accountant about purchasing another (negatively geared) investment property. Continue to save the surplus funds, potentially look to re-finance and draw down any equity, and go purchase again

 

Thanks all for your inputs. We have decided to pay taxes for the positive income of our rental property, rather than to renovate to add values. Buying another property will occur in the future, but not in the next 2-3 years as the price might drop. It will be a bit risky for us to purchase a negatively geared property at this stage.