When it comes to making money from investing in real estate, probably the most popular or common way most people go about this is by carrying out a few basic renovations. The whole idea is to improve a property to add value to it. When renovating an old place, the idea is to make it more liveable or appealing emotionally to prospective purchasers or tenants.
There are literally hundreds of ways for you to add value to a property. You could, for instance, retro-fit the old bathroom, give the kitchen a make-over, paint the exterior walls and roof or render the walls. But remember, renovations for profit should be cosmetic. What do I mean by that? Don’t overcapitalise and install high end costly fittings (although it’s extremely tempting). You are renovating as a strategy to make money – don’t get stuck in the emotion. I avoid major structural changes and look at places that have good bones already.
Render one wall instead of all. Put up a new fence as it creates a sense of privacy and appeal. Personally, I don’t spend much in bathrooms – however dress them up (affordably) for aesthetic appeal, however when major construction and plumbing is involved the costs can escalate – especially when you need to get council involved so I defiantly avoid this. The key to a quick add-value renovation – where you can realise a substantial gain in a short period of time is planning, research and budgeting…
One good way to decide whether a renovation will be a good strategy is to research rentals in the area and gauge if you will get back what you spend in renovation costs through rent. The smart thing to do is to only do what you have to impress a valuer. And be prudent. You see, it’s useless spending time and money renovating if a valuer doesn’t even recognise the value in what you’ve done. For this reason, I always recommend you keep renovations simple and obvious and avoid anything of a structural nature.
Call it artificial, but everything must look good from the street. I say this because we know valuers compare properties in the area even before they get into the house in question. This way they already know what the average property consists of and how much its worth. The idea here is to set yours apart from the rest even at street level. Use a fresh colour scheme so that it’s obvious you’ve spent money upgrading the place. Maybe use dark, solid colours for the trim as this is noticeable and stands out.
From the very beginning you should be aiming to prove to the valuer that you have made the effort to improve the property.
So you might add a carport if there is no lock-up garage; which means you have added value far beyond the $1,800 or so it costs to erect a carport. Maybe if the garage connects to the home and has an internal laundry and internal access, it could be converted to fantastic master bedroom suite with an ensuite (obviously ensuring ceiling heights and council guidelines are adhered to); i.e turning a 2 bdrm 1 bath to a 3bdrm 2 bath – adding another bathroom and bedroom can add enormous value for minimum outlay – as the property already has the bones for this configuration.
You might also consider a pergola, timber deck and/or paved area; for the $4,000 or so this costs you’ll be adding value and maximising depreciation at the same time. When it comes to the internals, I use the same principles. I walk through the property with a pen and paper and assess what I can do that will have maximum effect for the least amount of money.
The sort of things I look for are the following:
- Paint the rooms light in fresh neutral tones ( this colour palette alludes to more space)
- Re-laminate the kitchen – some of the laminates look so real and truly transform an area – it’s truly remarkable what you can do for minimal cost
- Replace lights with strategic, cost effective pendant lights, or feature light fittings they offer an instant emotive appeal
- Opening up ceilings with exposed beams or skylights also can make a huge difference
- Replace carpets with neutral plush carpets (some great ranges on offer for around $2000 – $3000 for an entire house)
- Rip up tired carpets on the staircase and polish wood or concrete
- Install new curtains or chic blinds to liven up the room (they don’t cost much but are so effective)
- Sand or varnish floorboards, polish concrete or lay floating timber floors
- Turn the internal laundry into another bathroom (as the plumbing is already there)
- Maybe remove a non structural wall to open up interiors
- Exposed brick is really in fashion and if presented correctly can really offer a rustic industrial appeal
- Replace older sliding doors with stacker doors to offer a modern seamless indoor/outdoor flow and open up living areas.
These improvements get huge mileage from valuers which is the whole point of the exercise. Seriously you want to be able to add value, raise the rents and access a good chunk of equity after all your efforts – otherwise what is the point. Think and plan very carefully so you can astutely give the property more appeal, particularly when it comes time to rent it or even for a quick flip – you want to be able to grab around $50-100K in a short timeframe, recycle the equity and reinvest it in your next investment…the point is a renovation should leave you with options – not depleted and overexposed.
I have learnt over the years that hard work by itself doesn’t necessarily guarantee results, intelligence does. This means you need to approach investing in the real estate market including using a renovation strategy intelligently. If you are using renovating as one of your strategies for building your portfolio and in your plan for future wealth – then I commend you as your in the trenches, learning and getting hands on experience! The main thing I hope to help people with when reading my blogs is advice on how to do things better, savvier and to give tips where I may have failed before. I am pleased that you are getting in there taking action….especially right now when the market is absolutely going ballistic – have you got a plan carved out? If not I suggest you click here and read this post ASAP. If you have you done well at a renovation – we would love you to share with us your winning tips and how you made a profit in the comments section below…or if you have lost money – please feel free to share in your experiences of what you would defiantly avoid next time.
Stay tuned for more tips to help you make 2014 your year in property….