Converting a Three-Bedder to a Four-Bedroom Home

By
20/03/2014


Our expert answers a reader’s question on the value of converting a garage to a fourth bedroom

Question: I recently bought and have gone halves with my brother in a property. It is a three-bedroom place; however, we are looking to make it a four-bedroom by turning the garage into a fourth bedroom, considering there will still be an undercover car park outside. Do you think a fourth bedroom is of better value than a second undercover car park? There is alternate outdoor parking around the property.Next, we are going to render and paint the exterior of the house, then we were hoping to get our house evaluated and use the equity to buy a second place to live in while we rent out this one. Does this plan sound feasible to you? Are there any traps I’m not seeing?

Answer: Having the ability to protect a car from the harsh Australia sun and climate can make sense as it protects the value of the car and as such it could attract tenants with two ‘better’ cars. However, considering there is ample street parking, from a property investment perspective a fourth bedroom is always going to improve the rental return more than a second undercover car space, but there are some important things to consider before pushing ahead with this idea. 

Firstly, you need to ensure that the capital outlay to convert the garage into a fourth bedroom is not too excessive, ie to a point where the increased rent doesn’t improve the overall yield performance. 

Secondly, every council will have regulations regarding garage conversions for habitation, plus tenancy laws could also come into play in terms of fire alarms, cooking equipment, etc, meaning that you must ensure you do not offer a room/accommodation illegally as the consequences would certainly outweigh any cash flow benefits.

Improving the exterior of a property can and does radically change the look of a property and can have a very positive uplift when it comes to getting it revalued after the works are completed. 

That said, you would need to ensure the starting valuation is significantly lower than the comparable properties you are trying to replicate with your planned exterior renovations. 

Too often I see and hear of reno-rescue projects that add little value above what the capital outlay is, as those doing the works incorrectly judge their property comparability to superior properties instead of comparable properties, resulting in little uplift for effort. The exceptions to the rule are those who do their comps well and get value input from very experienced agents in the area who are honest and realistic about how certain changes will impact on value and rental return.

Disclaimer: The views provided are of a general nature and should be considered as general information only. This is not financial advice and it is not to be acted upon without advice from a qualified professional who understands your personal circumstances.

The expert
Ben Kingsley - Ben,is the founding director and CEO of Empower Wealth. He is a qualified property investment adviser (QPIA) and property analyst and the chair of Property Investment Professionals of Australia. He holds a Cert IV in mortgage finance and is a licensed estate agent.

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