Renovation/extension advice 3/1 into 3/2 or 4/2

Bit of a renovation dilemma. Would like to turn this 3/1 into either a 3/2 or 4/2 to increase rental income and/or long term capital growth.

It's a brick house, so there's no obvious easy way.

Without getting professional advice yet, have been thinking of the following possibilities.

1. Extend out into the back covered patio area with something like Hebel or weatherboard and try and add an additional bedroom and bathroom to that space, keeping existing kitchen where is. Unsure if this would require knocking down the existing external wall or just converting it into an opening. This would make it a 4/2.

Option 2. Trying to use the existing laundry, knocking out the cupboard space and adding a toilet/rearranging the appliances and adding new vanity, turning it into a laundry/bathroom. Would obviously need to add a sliding door where the current opening is. This would make it a 3/2.

Question is are these options feasible?
Are external renovations worth the effort?

If it cost me $150k to make it a 4/2, I'd probably need atleast an increase in at least $250k house value to make it worthwhile.

To convert that laundry into a laundry/second bathroom looks to be cheaper, but unsure if enough space.

Option 3:
Keep existing layout exactly as is, and try and manufacture equity through internal cosmetic update, paint, cabinetry paint, new blinds/carpet, laminate flooring, new oven, etc. This is the cheapest/simplest option but unsure what the return would be on say $40k internal cosmetic. Also long term would still be limited by the fact its a 3/1.

Long term could probably do combination of option 2 and 3, cosmetic update + second bathroom conversion if that's at all possible.

FWIW the block isn't short of land, it's 710 sqm. It's just the house is pretty tight.

 

Are you planning to keep this property long term (say 10+ years?) or is there any thoughts of selling the property either as a flip or in the next 2-5 years? Location is another factor to review

 

This is going to be a 10-20 year hold all things going well, so potentially updates could be made down the track before selling.

 

Good point, rental appraisal after this lease is expected to be $380-400 as is.

Would be thinking that converting to a 4/2 could make it $450-500 pw, but even hoping if possible to add second toilet to the laundry might help.

Only way to get more living space is to extend, but the floorplan isn't really condusive to two separate living spaces.

There is a nice big double outdoor shed though that might have potential for a break out space.

When you say tart it out, does that mean pretty it up a bit with cheapish cosmetic reno/appliance update/paint coats, new door trimmings/curtains etc?

 

It's currently tenanted and they are open to staying on, just trying to maximise future yield and CG, I guess adding a $100k reno is more a selling play down the track as even at an extra $100 pw rent, thats 20 years before I get that back from just rent increase

Is that logic fair? This is the first time I'd be doing something like this.

 

The house has very small living spaces if the diagram is to scale.

 

While renovating your investment property there is loss of rental income that occurs when you decide to renovate.Many investors/renovators have heard stories of renovations that can haunt the nightmares of any ambitious property investor. Costs can spiral out of control; council regulation and restrictions may limit your plans from coming to life and delays can have a serious effect on your budget. Renovation can be very unpredictable, even seasoned renovation experts can suffer from the unexpected.

It makes good sense for investors to spend money on their existing assets to increase the rental return, because doing so creates more cash flow and also potential to increase the asset value

The trick is knowing which renovations are going to increase the value of your asset and bring in higher rents, so you can avoid overcapitalizing on it

 

Sound advice in here.

I think I've decided the big, long term extension of trying to create a 4/2 by extending out the rear external wall is not worth the hassle at this point. Instead, should the existing tenants move out, I will use that vacancy time to complete a much safer internal cosmetic freshen up and update, things that have far less hassle and risk like painted walls, new carpets, updated kitchen cabinetry, new blinds, increased curb appeal with some landscaping and planting. These are things I can do some of myself for lower cost. Hopefully they could also add some more equity potential too. I could probably spend 10-15k internally and hope that adds maybe 40-50k in valuation.

I'll hopefully rely on organic capital growth from the market over time and the appreciating land value of a decent 710 block.

The money saved will either be used to renovate down the track (10-20 years if I sell) or more preferably to try and get my next IP sooner and hopefully compound growth or find something with more value add potential.