The Ace up your sleeve when you choose to invest in property

One of the most popular types of articles for people looking to invest, is the arguments for and against property, shares or bonds and even leaving your money in the bank.  property purchase home

While many like to quote the performance of the housing market vs the share market over the last 3, 5 or 10 years etc., it is not strictly all about performance.

There are also many other smaller factors that I feel give the edge to a property investor.

Perhaps the bigger reason that I choose property over shares, is because you can add value to property.

The average person cannot do that with any other asset.

I’ve often said: “You can’t go down to Woolworths and paint the walls and hope the share price goes up!”

The ability to add value to a property, really is the Ace up the sleeve for an investor if they are looking to increase value, return and widen their asset base faster.

Let me demonstrate using a recent purchase here in Brisbane;

Case Study

We recently purchased this home for a client in Stafford Heights, approximately 8km from the Brisbane CBD.

The location is well known to us as the suburb is a proven performer and in the early stages of gentrification.

floorplan-House

The property was an old and tired, 3 bedroom, 1 bathroom, 2 car home, purchased for $567,500. 

investor-enquiry-form

Something that we identified early on in our due diligence was that the property needed a renovation.

Even better, it was very simple to add a 4th bedroom and a second bathroom in the form of an Ensuite to the Master Bedroom.

We undertook the upgrades and renovation for our client at a total cost of $80,000.

After Renovation costs, it would be fair to say that we have increased the value of the property by more than $50,000.

interiorkitchen (1)

Granted there are additional costs associated, but the primary purpose of the exercise was to widen our client’s asset base faster, rather than relying on the market to do the heavy lifting. property mortgage finance money

Secondary benefits included adding additional rental income, finding a better-quality tenant and increased depreciation.

We had manufactured a 10% gain from a cosmetic renovation and simple reconfigure.

We may have had to wait a couple of years for the market to add this value for us, in some areas even longer.

While other assets do not represent this type of opportunity, property does and if you are currently looking to invest in property, you may be missing a trick.

When there are turbulent markets, lower than usual inflation and uncertainty in the market, the ability to add value cannot be underestimated, it is the Ace up the sleeve.

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About

Brett Warren is Director of Metropole Properties Brisbane and uses his 13 plus years property investment experience to advise clients how to grow, protect and pass on their build their wealth through property. Visit: www.brisbanebuyersagent.com.au


'The Ace up your sleeve when you choose to invest in property' have 6 comments

  1. Avatar for Property Update

    January 6, 2019 Howard Savage

    As a rule, keeping the renovation budget to 10% of the market value of the home is about right. – (The top 10 tips for first time renovators)
    So in this case study, this would have meant that the market vale of the property should have been $800,000 given an $80,000 renovation …. so possibly it was somewhat of an over capitalization of the property, given that market vale would be $727,500, allowing for even a $60,000 gain, after renovation?

    Reply

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      January 17, 2019 Howard Savage

      So am I correct in assuming that no response to this reflection is confirmation of the issue I have raised?
      I have no doubt that there was probably a lot more information to this story that wasn’t or couldn’t be included, however on the ‘face of it’ this case study doesn’t appear to ‘stake up’ particularly well??

      Reply

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        January 18, 2019 Michael Yardney

        Howard I did repsond to your comment – it may have been brief as I’m still on vacation in Europe

        Reply

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          January 18, 2019 Howard Savage

          Hi Michael – my reference to ‘no response’ was to my 2nd comment (above) in this thread, about the possibility that the case studied property was over capitalized, based on your own suggested rule, of keeping a renovation budget to no more then 10% of market value of the property.

          Your response to my first comment (below) was comprehensive, I thought. Personally I would be cautious about spending renovation funds on a property, if I was not getting dollar for dollar increase in capital growth in a reasonable timeframe, for the renovations funds I spent.

          On a completely unrelated matter – you place very high expectations on yourself, to respond to all these articles personally, many of which have been written by different authors (as is the case with this article). Please don’t let my questions negatively impact your holiday – enjoy your time off!! :)

          Reply

  2. Avatar for Property Update

    January 2, 2019 Howard Savage

    In an ideal situation, one would be looking for a return of $2 for every dollar spent in a renovation – just wondering how spending $80,000 on a renovation for a capital gain of $50,000 can be considered a good outcome? I realize that there was also some increase in rental income.

    Reply

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      January 3, 2019 Michael Yardney

      Howard – the Get $2 for every $1 you spend on renovations is a myth, told to you by people selling courses.
      Last yeat my team were involved in over 50 renovations and 70 the year before and w’ve been at that level for over a decade.
      When you renovate you get:
      1. Increased capital value – but not 2 for one as you suggest.
      2. Higher rent that pays for the extra borrowing interest for the reno.
      3. A wider range of better tenants
      4. Depreciation allowances.
      5. The ability to refinance and pull out some equity

      Reply


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