Whilst investors are enjoying the fruits of an extremely tight rental market at present, with historically low vacancy rates across all capital cities, this is no time for landlords to become complacent about the upkeep of their investment or over-confident about keeping their property occupied.
Spending a bit of time and money sprucing up your investment can make a big difference when it comes to re-letting and minimising vacancies between tenants. Not only will a home that’s well cared for reduce the likelihood of it sitting empty for long periods of time, it will have the added benefit of attracting better quality tenants willing to pay a little extra for top-shelf presentation.
Essentially, some small and inexpensive improvements can give your property that point of difference and make it stand out form the crowd.
It is true that tenants cannot afford to be as fussy these days, with fierce competition for any new stock that hits the market, however quality tenants are increasingly discerning about where and how they want to live.
Many young singles and families are being forced out of home ownership with affordability issues and increasing interest rates posing a real concern. Therefore the property they rent may be home for a number of years. And given the current inflated market prices they are forced to pay, many expect high priced rental properties to at least look decent and well cared for.
A bit of TLC
Before you start counting the potential cost of knocking down walls and building on extensions, don’t panic! I am not suggesting that you need to spend tens of thousands of dollars undertaking costly renovations to ensure you get the right tenants at the best possible price.
On the contrary, in most cases all that is required to bring a tired looking rental back to a fresh, clean and enticing place to live is a bit of TLC.
First and foremost, your rental property requires street appeal. With tenants scouring the internet and driving past prospective properties before they even consider making an appointment or attending an OFI, it is more crucial than ever that your investment looks neat and tidy on the outside.
Ensure that lawns are mowed, garden beds are in order, paths and driveways are clean and the front of the building is presentable. For older style weatherboards or period rendered homes, this might even require a lick of paint, some new guttering and/or roof restoration/repairs.
Of course tenants are not going to live on your front lawn! So it is also necessary to consider what you can do on the inside of your property to increase its appeal. One of the best approaches to work out what you might need to repair, add or alter is to take a step back, cast a critical eye over your investment and objectively ask yourself, “If I lived here, what would I want to see improved to increase my comfort and really make me feel at home?”
Keep in mind that little luxuries such as air conditioners and dishwashers can make a big difference as to how much a tenant is prepared to pay. There will always be more demand for a rental that offers these options rather than one that does not. It is these extras that make a property stand out from the crowd.
Perhaps consider a coat of paint to freshen the property up and maybe some new carpet and tiling. These simple cosmetic enhancements can really transform a tired looking investment into something modern and engaging, that will catch a prospective tenant’s eye as soon as they open the front door.
The next step of course is updating old kitchens and bathrooms. We all love modern, shiny appliances and your tenants are no exception. If you can afford to make these types of improvements and your kitchen is languishing in the seventies, this could well earn you a much better quality of tenant and price for your investment property when you re-let. Two things every landlord hopes for.
How much is too much?
A common question asked by investors is, “How much should I be prepared to spend on improvements to my property? Will I get a reasonable return for my investment dollar?”
Of course property investment is about making money, not throwing it out the window, so it is important to do your sums and have a clear understanding of the costs and potential profit before embarking on any renovations – big or small.
To work out whether undertaking work on your property is worthwhile, it’s important to crunch some numbers and see the results.
Currently many of our clients at Metropole are undertaking complete internal makeovers for around $45 or $50,000. This gives then new kitchens with new appliances, new bathrooms, split system airconditioning, new curtains, carpets and light fittings and a fresh coat of paint.
In many cases I’ve seen the value of their property go up by $75,000 to $90,000 and their rents increase by over $100 a week.
By outlaying a bit of cash to make your investment more appealing than the next guy’s, not only will you have a top quality tenant paying a premium to rent your property, you will also gain taxation benefits.
When tax time rolls around and you receive your refund, you will find that the depreciation allowances on such improvements will have increased the amount you get back.
On top of this, should you choose to utilise the scrapping rule, allowing you to write off the cost of any items that you have ‘scrapped’, you could be eligible for a further tax credit.
When you think about it, all of this translates to a pretty handsome return on your additional investment. And given that you could borrow for the costs of renovation work from your bank, based on the increased end value of your renovated property, you can reap all the rewards without putting your hands into your own pockets! Not bad right?
In the end, for all of your efforts, you will be rewarded with;
- an investment property that is worth more (you will have actually created capital growth),
- a happy, top quality tenant more likely to look after your investment,
- a better rental return,
- taxation benefits, and
- a property that won’t languish empty on the rental market, even if the tide turns and vacancy rates increase.
I have seen many clients reap some fantastic rewards by undertaking minor renovations on their rental properties and in my opinion, all of the above benefits make this an option well worth considering.
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