Renovating your investment property can be a savvy way to increase your rental income and boost the value of your asset, but there’s a lot to consider before you jump in.
Is 2021 the right time to renovate? What type of renovations will give you the best bang for your buck? And should you even renovate at all?
Should I renovate my investment property?
The purpose of an investment property is to provide you, the investor, with the best possible return. This return is generated by a combination of rental yield (rental income) and over the longer term, capital growth (the value of your property).
Renovating your investment property has the potential to both increase your rental yield and enhance your property’s capital growth.
A renovated rental property can stand out in a competitive market, helping to attract and retain quality tenants and allowing you to charge higher rent.
If you’re looking to sell your investment property, renovating can boost your property’s capital growth and increase your chances of getting the best possible price. Remember to factor in any capital gains tax payable when doing your sums.
Of course, renovating can be very costly. Data from Suncorp Bank shows that the average WA renovation cost $54,377 in the 19/20 financial year. The Federal Government’s HomeBuilder grant can be used to fund substantial renovations, but it is restricted to owner-occupiers. It is crucial to do your research and check your numbers before deciding which (if any) works to undertake. You want to enhance your investment property, not over capitalise on it.
Is 2021 a good time to renovate my investment property?
When deciding whether this year is the right time to renovate your investment property, you’ll need to know what both the rental and sales markets are doing. Let’s have a look at the current market conditions:
- Rents are rising. Perth rents rose a remarkable 8.2% in the year to November 2020, the biggest 2020 rise of any Australian capital city.
- Property prices are looking promising. Sales activity increased towards the end of 2020 and the median property price also made a modest rise. With property prices still affordable, interest rates low and economic conditions improving, forecasters are predicting a positive year ahead for the Perth property market.
- Vacancy rates across Perth are low. As of November 2020, the vacancy rate was a tiny 0.9%. This means the rental market is competitive – for tenants. Landlords are in a very strong position.
Whether you’re considering selling or want to hold on to your investment property, it’s a good time to be a Perth property investor. The question is, given the current market conditions, should you renovate your investment property?
In short, it depends. It comes down to your individual property and the suburb it’s in. Talk to an expert, such as an experienced property manager, and find out what features buyers or renters are looking for in properties in your area. Compare your property with similar properties in the same area. Ideally your property will stand up against the competition, but it doesn’t need to be extravagant or over the top.
Which renovations offer the best returns?
When renovating your investment property, you want to ensure that the work you’re carrying out is going to add maximum value. Which renovations will give you the best bang for your buck when it comes time to rent or sell?
- Kitchen – updating or replacing an outdated kitchen can significantly improve the liveability and appeal of a property. Consistency is key with kitchen renovations – there’s no point pairing expensive appliances with DIY cupboards.
- Bathrooms – clean and contemporary bathrooms are highly valued by renters and buyers alike. There are many components in a bathroom, making it easy to overcapitalise, so be sure to stick to your budget.
- Painting – a fresh paint job can instantly refresh and modernise any property. Better yet, the outlay for painting, in terms of both time and money, is relatively minimal.
- Blinds and curtains – these can instantly freshen and modernise any property, at minimal outlay.
- Air conditioning – installing air conditioning is unlikely to increase the capital growth of your property, nor your rental yield. There is, however, no doubt that air conditioning makes your property more attractive to potential tenants, particularly if the property is up for rent during the spring and summer months.
- Street appeal – a neat and tidy front garden, including mown lawns and weeded and mulched garden beds, a front fence in good repair, a new house number and letterbox and especially a freshly painted front door can all make a big difference.
- Outdoor areas – given our incredible Perth climate, these days outdoor areas are considered an extension of the living space. An attractive outdoor space can draw renters and buyers in with its promise of an easy, breezy outdoor lifestyle, so it can be worth investing in renovations here.
No matter which works you decide on, make sure the look and style of the renovated area will appeal to a broad audience. Keep your personal tastes and preferences for your own home. And remember that poorly done DIY work can deter renters and buyers – consider engaging the professionals to get the best results.
If you’re looking for advice on renovating your Perth investment property in 2021, contact our expert property management team today.