Why bother adding value - reasons other than rent or equity?

Discussion in 'Renovation & Home Improvement' started by jaybean, 26th Apr, 2017.

Join Australia's most dynamic and respected property investment community
Tags:
  1. jaybean

    jaybean Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    4,752
    Location:
    Here!
    I've maxed out my serviceability so no more equity releases.

    So now I'm thinking about how I can boost rental income.

    I finished renovating a 2 bedroom highset QLD home about 2 years ago. It was in a pretty bad state and now it's incredible, I wouldn't mind living there myself:) Anyway I've started thinking - a good way to boost rent would be to lift the house and build out the downstairs area to add a few new rooms. But looking at the numbers, the increase in rent could never justify the amount it would cost me. I would expect a min pay off period of 3-5 years and I can't get the numbers to align.

    So other than an equity release, rental increase, or just general renovations (if it were in a bad state), I'm wondering what other reasons would there be to add value? Assuming I've got all the standard stuff covered, is rent and equity all there is to consider?

    In this situation is it safe for me to say it's not worth adding any more to this house and I should just leave it be? I plan to hold for the long term so there's no short term imperative to add bedrooms for higher resale.
     
    jaybean, 26th Apr, 2017
    #1
  2. DaveM

    DaveM Well-Known Member

    Joined:
    14th Jun, 2015
    Posts:
    3,761
    Location:
    Adelaide & Sydney
    Less maintenance, less vacancy
     
    DaveM, 26th Apr, 2017
    #2
    LukeR likes this.
  3. jins13

    jins13 Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    2,358
    Location:
    Sydney
    Depreciation schedule
     
    jins13, 26th Apr, 2017
    #3
    LukeR likes this.
  4. jaybean

    jaybean Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    4,752
    Location:
    Here!
    As I said it was recently renovated to perfection:) So the question is what reason would I have to keep going further other than to boost equity or boosting rent?
     
    jaybean, 26th Apr, 2017
    #4
  5. jaybean

    jaybean Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    4,752
    Location:
    Here!
    Minimize tax? Yeah good point.
     
    jaybean, 26th Apr, 2017
    #5
  6. wylie

    wylie Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    14,020
    Location:
    Brisbane
    We have a similar dilemma. We have a house valued about $900k renting for $580 per week. We need to shift it on its block as part of a DA.

    While it is moved on the block, we will also raise it to legal height and possibly add a slab and batten it in. Lifting and reconnection, including new stairs back and front will be about $100k for which we will get not one cent more in rent. It is just higher, but not improved at all.

    So, instead of paying for two new external staircases, I'd like to add an internal staircase instead, place the front door at ground level and simply box around the new internal stairs. We lose a room upstairs to do this, so it isn't an easy decision.

    I'd also prefer to weatherboard the lower level rather than pay for battens which will be removed some time if it is built under (same as paying for new stairs x 2 which will be removed if the downstairs is built in).

    To build in downstairs, lose one room upstairs but add a ground floor living area, and a couple of rooms is likely to cost about $300k and we would might achieve $700 per week rent.

    Interest on $100k cost to simply lift must be absorbed by us. That is about $100 per week that we won't get back.

    Repayments on $300k to do the bigger job would require about $290 per week in interest , which simply is not achievable.

    We have to do the shift, so lifting at that time is sensible. Building under just isn't justified.
     
    wylie, 26th Apr, 2017
    #6
  7. jaybean

    jaybean Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    4,752
    Location:
    Here!
    ^^ yeah I'm currently thinking of just giving up for now and moving on.

    Why give up my precious liquidity? I'll hold onto my cash and return when my servicabity improves so I can simultaneously boost rental returns and get the money out again immediately after.

    That being said "do nothing" is not exactly the worst thing in the world since I don't have the desire to take on a big project right now.
     
    jaybean, 26th Apr, 2017
    #7
  8. Colin Rice

    Colin Rice Mortgage Broker Business Member

    Joined:
    9th Jul, 2015
    Posts:
    3,184
    Location:
    Perth
    If perfection has been attained then you cant add to it. Put your feet up and have a cuppa :)
     
    Colin Rice, 26th Apr, 2017
    #8
    Danyool and Gockie like this.
  9. wylie

    wylie Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    14,020
    Location:
    Brisbane
    Oops... I think I missed this bit. Our places are in reasonably good condition but certainly not "renovated to perfection". I'd also do as @ColinRice says and put your feet up and have a cuppa. :D
     
    wylie, 26th Apr, 2017
    #9
  10. jins13

    jins13 Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    2,358
    Location:
    Sydney
    I don't blame you, as the last major reno project really made me hate some of my fellow mankind due to the delays and lies. But to be fair it was a wonderful project once it was completed and did result in a good val at the end. I guess it was also good in that I learned alot and took heaps of pictures for me to keep as memories for the future. Very rewarding but without a benefit, I wouldn't do it.
     
    jins13, 27th Apr, 2017
    #10
  11. Blueskies

    Blueskies Well-Known Member

    Joined:
    24th Aug, 2015
    Posts:
    1,769
    Location:
    Brisbane
    Aside from adding value i try to weigh up that sort of investment in terms of return on equity (ROE).

    Even if a $10k Reno only justifies a $30/w rent increase then it is still a 16% return on your investment. Where else can you reliably get that sort of return, especially if you are tapped out for serviceability?
     
    Blueskies, 27th Apr, 2017
    #11
  12. LukeR

    LukeR Well-Known Member

    Joined:
    17th May, 2016
    Posts:
    98
    Location:
    Melbourne
    Have you thought about subdividing the block and selling the remaining land?

    Applying for plans/permits can also boost the valuation
     
    LukeR, 27th Apr, 2017
    #12