Hi. I’m Kristal Everingham and I’m a buyer’s agent at Pumped On Property. In today’s video, we’re going to be talking about how to find the right property for a renovation.
Today I’m going to be talking about what is a renovation, why a renovation is important, the difference between structural renovations and cosmetic renovations, and what it all means for you as an investor.
What is a renovation? Basically a renovation is any way for you to add value or create more appeal for your property so that you can re sell that property for more or get as much money out of that property as possible. Why is it important for you as an investor and when it is important to actually do a renovation? Renovations are important because it’s going to help you withdraw equity from your investment property, it’s going to help you increase the re-sell value of that property, it’s going to help you increase the street appeal and the owner occupier appeal of that property whether that be through structural changes or cosmetic renovations.
When’s it important to do a renovation? It’s up to you as an investor on how long you’re planning on owning that property for and when that renovation is going to best suit your goals for that particular property. Here at Pumped On Property we generally suggest that minor cosmetic changes might need to be done in the first few months to get the best out of your rental yield. But ideally hold off any major renovations for the first two to five years where possible so that you can wait for that property to go up in value as much as possible before you then need to do that work on the property and hopefully the renovation by the time you come to doing it is justified.
The difference between structural renovations and cosmetic renovations. First of all, what are cosmetic renovations? We categorise cosmetic renovations as the more basic, more simple, every day things that need to be done on a property. Things like repainting the house, internal carpet, polishing floor boards, upgrading the kitchen, upgrading the bathroom, modernising the light fittings, that type of thing we consider as cosmetic renovations. Basically anything that you can do to the property that’s going to add to the appeal of the property and it’s less about adding value and more about just tidying up that property, creating a little bit more of a better feel, more street appeal, landscaping the gardens, painting the outside of the property, that type of thing is what we consider cosmetic renovations.
When is a cosmetic renovation appropriate and what does it actually do for you as an investor? We suggest doing cosmetic renovations occasionally. Like I said before, in the first few months. It might help with your rent return and it might help with your re-sell ability of that property and the appeal that, that property has. Cosmetic renovations don’t necessarily add too much value to the property but they do add to the appeal of the property and they help you get higher rental yield and potentially higher re-sell because it presents that little bit nicer for your cosmetic simple changes.
What are structural renovations? Here at Pumped On Property we consider structural renovations to be any sort of major project for that particular property. Knocking out walls, adding bedrooms, adding bathrooms, raising the property to legal height, extending the property, basically changing the material use of that property. Changing the attributes, making it a four bedroom home over a three bedroom home, creating open plan living, adding back decks, that type of thing. These types of renovations tend to be what we recommend doing two to five years after you purchase the property. At that time, the purchase price of the property, hopefully there’s been some capital growth, suburbs gone up a little bit in value, a bigger renovation at that time is a little bit more justified. Hopefully you’re going to do that renovation to withdraw some equity, take out that equity and buy elsewhere. That’s the best time to do a structural renovation. It’s less about creating more appeal and more about increasing the value of the property using that value when it comes to re-sell or increasing the equity so you can do something with that money.
Structural renovations are obviously more time consuming and more costly. You’ve got to be very tactical with when you do a structural renovation and why you’re doing it. Is the money that you’re going to be spending on the structural renovation justified? Compare the property that you own and if you’ve got a three bed, one bath property and you’re looking at doing the work to make it that four bed, two bath property compare recent sales history. Make sure it’s justified. It could be worth you just chucking on a coat of paint, putting in some new carpets, spraying the tiles, and trimming some trees. That’s justified enough for the area that your property is in. You really could be making some decent money by doing a more serious structural renovation adding a bedroom, adding a bathroom, that type of thing and using that property and that money that you’ve spent to your advantage so you can withdraw the equity and buy again.
You’ve got to be very tactical with when you do the renovation and what type of renovation you choose to do. But both are important and both are going to work to your advantage whether it be to increase the rental yield on that property or increase the equity and the value of that property. An example of this is a recent client that we bought for, I think the house was about 12K to Brisbane CBD. It was a four bed, two bath home, double story brick and tile, a more modern 20 year old type of property. It had an oversized floor plan and we saw an opportunity there to create a five bed, three bath property by changing out that floor plan.
Our client spent 30 thousand dollars on top of the purchase price and by spending that money there’s comparable sales in the area where five bed, three bath houses are selling for between 15 and 70 thousand dollars more for the cost of the home plus the cost of the renovation. This type of work is quite justified. Obviously he chose to do it in the first six months of owning that property. Then by the time the suburb does go up in value, which is what it’s predicted to do we can hopefully see a little bit more of growth through that particular structural renovation. This is an example of how you can use that structural renovation to your advantage by changing the attributes, increasing the bedroom numbers, increasing the bathroom numbers, and really adding some value so that you can withdraw that equity, and use that as a down payment for another property.
Do what you wish but it just helps add that value to the property. I’ve got other clients who have recently purchased properties where they have spent ten thousand dollars in the first four weeks of owning that property and it’s helped turn that property from a dilapidated, ugly duckling type of property. It needed new blinds, new carpet, polished floor boards, sprayed the kitchen bench, painted internally, landscaped the gardens. For ten thousand dollars the simple changes that were done to that property helped him achieve about 30 to 40 dollars extra a week in rent return. At that time it wasn’t really about adding value to withdraw the equity. For him it was more about doing that work and making some cosmetic changes to help with the rent return so he can buy and hold that property for a little bit longer.
As you can see, you’ve got to be smart with when you choose to do your cosmetic renovations and when you choose to do your structural renovations. Both are important for you as an investor.
What have we talked about in today’s video? I’ve discussed how to select the right property for renovation, what is a renovation, why a renovation is important, and the difference between structural changes and cosmetic renovations.
I hope you found today’s video helpful and informative. I’m Kristal from Pumped On Property. I look forward to seeing you soon.