Historically property investment values have increased over time, some areas more so than others. However, there are ways to increase the value of your property investment without having to rely on time and the market to deliver gains.
Today, savvy property investors are using a more creative approach by creating equity in their investment properties. This is readily achievable for an investor willing to take the time to improve their property. You can manufacture instant equity through smart renovations and boost returns by increasing the appeal to tenants.
What Kind of Renovations Increase Property Value?
The key to is to not overcapitalise. Identify key aspects of a property that would appeal to tenants and future buyers and improve them to a modern standard suitable for the suburb it’s in and the demographics likely to be drawn to it.
● Kitchen and Bathroom – These areas undoubtedly have the most impact on how a property is valued. A newly renovated kitchen and bathroom can make the property more attractive to tenants while adding capital value.
You’d be surprised how much a simple coat of paint and some new fittings in these areas do to the overall value and appeal of the property. New flooring and blinds can also do wonders. But don’t go overboard and install a stone benchtop where laminate will do.
● Bedroom – One of the most effective ways of boosting rental yield is by adding a bedroom. Look for properties with a flexible floor plan where you can move internal walls or enclose a balcony within the roofline of the house.
● Subdivision – If your property has a large block, you may be able to split it into two or more blocks, allowing you to significantly boost your yield and capital growth. Ensure you look at local council laws specifying the minimum size of blocks in the neighbourhood and for any other zoning laws that might apply.
Don’t renovate to your own taste. You should prioritise functionality over aesthetic appeal. Neutral colours and classic, basic styles will attract a wider range of tenants and reduces the risk of looking dated further down the track when you want to sell.
Creating Equity is All About Meeting Demand
Successfully creating value comes down to the old principle of supply and demand. Look at an area that is up and coming or is in demand then buy and renovate so your property meets that demand. Achieving this requires you to do your research. Find out what kind of people want to live in the area and meet their needs.
To ensure you don’t overspend, try to avoid spending more than eight per cent of the property’s value on cosmetic renovations. Remember that renovating to build value is a strategic process to increase cash flow. Don’t get carried away trying to make the place look good for the sake of it.
Calculate the cost of your renovations and ensure the endeavour is worth it. You don’t want to spend tens of thousands of dollars for an extra $5 a week. Aim to achieve a return of 15 to 20 per cent. If you’re unsure how much value you’ll be able to generate, it’s a good idea to speak to a property specialist to get accurate valuations and cash flow projections.
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