Renovate to Maximise Rental Return


By Debbie Williams

A well-maintained rental property not only ensures happy tenants, but also higher rents. Debbie Williams shows you how you can turn your investment property into a well-oiled money-making machine.

If youre finding it hard to see the light at the end of tunnel in this global turmoil, take heart - there are ways to ride the downturn. Property has shown an average of 10% growth per annum since records began, and even though values may remain stagnant for a few years yet, it is still a secure and tangible asset. If you take good care of your assets, they will be good to you. With this in mind, many investors have kept their properties afloat during the current crisis is by renovating them to increase the rental yields.

It makes good sense for investors to spend money on their existing assets to increase the rental return, because doing so creates more cash flow. And in an environment of low interest rates, it is even more relevant. If a property is cash-flow positive and the owner has lost their job, the place could still generate enough income to cover its expenses - and possibly even provide some for the owner.

The trick is knowing which renovations are going to increase the value of your asset and bring in higher rents, so you can avoid overcapitalising on it.

The value of knowing your tenants needs I know someone who wanted to put air-conditioning in the investment property they were renting, but the landlord refused to let them install it even though the tenant was prepared to pay for installation - and even pay more rent once it was installed.

This landlord was clearly short-sighted and could only see the small initial outlay, not the long-term financial gain. This resulted in the tenant being dissatisfied and leaving, while the owner had to pay to advertise for new tenants and risk possible damage to the property from furniture being shifted in and out of it - not to mention the letting fees and the loss of rent while the property was vacant.

From my experience, most tenants move from one rental property to another instead of buying. So it is useful to know why they would rather spend the money, time and effort to move, rather than pay a little bit more to stay.

I find it comes down to some fundamentals:

• change in circumstances: the tenant may have lost their job and cannot afford the accommodation

• property no longer fits requirements: a growing family requiring more room or downsizing with a smaller family

• dissatisfaction with property: maintenance issues not being dealt with or even outdated furnishings and fittings

Simple renovations to maximise your rental return

There are many things you can do to increase your propertys appeal to prospective tenants - and increase the rental return in the process.

Although it is difficult to put a figure on how much the improvements would increase your rental return, keeping your property well maintained and up-to-date makes it attractive to tenants - and would certainly improve the competition.

Here are 13 of my favourite methods for improving an investment propertys rental potential.

1. Wash the walls and repaint them

The results will amaze you. Keep your colours neutral throughout. That way people can bring their furniture in without feeling they are competing with the place. Choose
a light colour on the window frames to draw the eye outside, making the space feel bigger. Paint comes in a variety of finishes. The flatter and lower the sheen, the more imperfections are hidden - but the finish is harder to keep clean.

Cost (DIY)

Sugar soap and scrubbing brushes: $10
Paint: will vary in price and by how much is required (note: one
litre will usually cover 15 square metres). For example, 5L white
ceiling paint (to cover 75m² of ceiling): around $35. 4L low-sheen
white wall paint: around $55. 4L low-sheen acrylic white kitchen
and bathroom paint: around $60. Add colour in store on purchase.

2. Take all rubbish away inside and out

This includes treeprunings, leaves and garden waste.
Cost (Professionals)
Garbage removal companies will charge from $100 and up depending on location and load.
Full load: around $700-800.

3. Put up new blinds/curtains

Nothing brightens a house like new blinds or curtains. Aluminium blinds are a good touch - they look clean and go really well with stainless-steel appliances and door handles. They also dont compete with furniture. One drawback, however, is they can be damaged fairly easily.
Cost (DIY)
PVC Venetians blinds
(60x137cm): from $10 each.
Timber Venetian blinds
(60x137cm): from $40 each.
Aluminum Venetian blinds
(60x137cm): from $70 each.
PVC roller blinds: from $10 each.
Timber slat roman blinds/ blockouts (60x210cm): from $65 and up.

4. Improve storage with built-in wardrobes

These are a great addition to any property, because they reduce the need for tenants to provide their own.
Cost (Professionals)
Two-door mirrored builtin wardrobe with draws, shelves and multiple hanging space: from $1,000-1,500 (plus installation costs).

5. Install new door handles

These can cost as little as $10 each (even less from some secondhand outlets). We like the simple ball handles in brushed stainless steel from major hardware outlets. They will match the stainless-steel appliances in the kitchen and the blinds.
Cost (DIY)
New door handles: from $10 depending on quality and detail.

6. Create bright areas with higher wattage light bulbs

Light fittings dont have to cost a lot but can detract from the look of the place if they are dated. Simple ball shades are under $10 and dont compete with furnishings or appear dated.
Cost (DIY)
Light bulbs: under $10 per bulb or less.
Light fittings: $10 (for plain 30cm oyster ceiling lights) and up.

7. Dishwashers

They are very important to some tenants - and not to others. The thing is that tenants who dont care still put up with one being there, but those who cant live without one wont rent a place without one, so they are a good investment for a rental property either way.
Cost (Professionals)
Dishwasher can range from $700 to $3,000 (will not include installation by plumber).
Installation (plumber): between $100-300.

8. Clean, clean, clean

Clean the floor coverings and carpets and deodorise the curtains. Even if the carpets arent dirty, cleaning them leaves the house with a fresh smell.
Cost (Professionals)
Carpet cleaning: around $30 per room (will fluctuate between companies and size of rooms).
Tile and grout cleaning: around $10 per square metre.
Drape cleaning: around $25 per meter per drape (will fluctuate between companies and size of drapes).

9. Change the floor coverings

Even though carpets depreciate well and are a good addition to a property for that reason, polished floors or porcelain tiles can bring in a much better rental return.
Cost (Professionals)
Will depend on materials, size, polish of flooring and company used to install.

10. Air-conditioning

In Australias harsh climate, tenants will pay more for a property with air-conditioning. Sometimes they wont even look at one without it. Split systems are cost-effective and can heat and cool the place.
Cost (Professionals)
Split system air conditioner: from around $900 and up (may not include installation).

11. Update your kitchen with a new paint job

One thats old and worn-out can take the fresh look out of a property. Painting wooden or laminate cupboards and drawer-fronts is a very cost-effective way of improving the look without the expense of replacing them. Use a good quality primer and semi-gloss paint - not high gloss as it shows the imperfection. Make sure you take all doors down, and sand them and paint them outside - away from open flames as some paints can be flammable.
Cost (DIY)
Undercoat (white): $33/L (around 12m² covered per L) $90/4L.
Top coat: laminate paint extra hard/more chip resistant - $40/L.
Top coat: oil-based Enamel or high gloss white enamel - $30.70-37/L (16m² per L per coat but need two coats), 4L for $62.90-73.40. Prices vary according to colour.
Water/aqua based enamel: takes longer to harden, less offensive smell - $26-35/L.

12. Security

It is very important to many tenants. Installation of secure locks and even security doors can pry a few more dollars out of your prospective tenants pockets.
Cost (Professionals)
New locks professionally installed (with new keys): from $120 per lock.

13. Have the property wired for the modern day

This includes security lighting, remote garage, Foxtel and phone connections in most rooms. Alarm systems are a good investment in some areas - just tell the tenant they are not responsible for the cost of monitoring.
Cost (Professionals)
Dependent on cost of electrician and services included - this could be around $1,000 and up for all of the above (more for remote garage).

Note: Top 13 prepared by Debbie Williams; cost and pricing prepared by Your Investment Property.

Think hard before you DIY

There are a few basic factors that come to mind when renovating - like time and money.

People often think that if they do the work themselves, it will save them money. This is not necessarily so. Take painting for example. A professional painter can paint a unit over a couple of days. They know the techniques: the pitfalls and what looks good, what should be attended to, how to paint patched areas and cover them successfully and so on. If youre not a professional painter, it is easy to become frustrated when the finish doesnt end up right. You are likely to spend an extraordinary amount of time to get a decidedly mediocre result. Weekends are often the ideal time to do renovate, but two days usually is not enough to get anything finished.

Take painting again, for instance. You will most likely spend a few hours getting ready, buying painting equipment, including paintbrushes, rollers, paint, drop sheets, sanding blocks, sandpaper, filler for the holes and more.

Once youve prepared the walls it will be lunchtime and, by dinner, youve probably only just started on the first coat. By then you will be frustrated as you only have one day left, so you end up working into the night.

If youre lucky - and organised - you might have the ceiling and walls painted by the end of Sunday. The only trouble is you have to wait until next weekend to get all the timber and doors done - or go over every night after work.

In the meantime you could have had a painter come in and finish everything in two days while you were at work. For me there is no question that I will stick to what I am good at and let the painter do what he or she is good at. And thats only the paint. What about the rest of your renovations?

While you are busy painting, theres a stack of other things on your list that is not being done. As an investor wanting to get tenants into your property, you cant afford to spend weekend after weekend doing DIY work on your property.

I keep my costs down by organising the equipment and keeping the site clean, so the tradespeople can work efficiently without obstruction. I also negotiate price on a daily rate before the start of the job. If a tradesperson is not up to scratch, I can have them finish up easily and cost-effectively.  Because I work this way, I am able to do renovation after renovation without burning out. This means the jobs are actually finished on time and I am earning my rental income faster.

Taxing issues

The big question when renovating rental properties is whether the expenses are capital in nature or a deduction.

If you renovate before you get any income from the property by renting it out, the expenses become part of the propertys cost base and may not be deductible. But if you have a property that you currently rent out and do repairs on, your costs become deductible.
Please take the time to check this with your accountant or financial advisor before you start the renovations, because it may be moresensible to change when you get the work done.

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