I’ve just finished Dolf de Roos and Steve’s first book. So I’m practically an expert on property by now*. But seriously, I’ve just started out, so I am interested in validating or having checked some of my thoughts, specifically determining potential rental prices.
It’s my understanding that the major differentiator of rental costs is the number of bedrooms and location. You aren’t going to pay $150 a week for a rental property in inner Brisbane, but you would quite easily find a place in the less advantaged area a little further out.
While reading both of the books it was suggested to make improvements to a property to improve their yield of the property. Specifically de Roos suggested putting up a garage for a $20 a week rental improvement.
The issue I have with that [being an expert* – see above] is that I don’t see property as something that can have infinite improvements made to make infinite returns. I would see a point where an input would result in an optimal return on investment. Of course, naturally not everyone is fully cashed up to perform these improvements, so this would be a natural limitation.
For example say I purchase a property in McKnightsville. In that area there is going to be and acceptable deviation of ‘features’, like a bell curve. Which is going to be bounded by what is affordable within McKnightsville.
A feature poor property relative to all properties in McKnightsville, not necessarily a bad property, just lacking additional features like car space, fans, air con etc what ever is deemed standard in that area. So improvements could be made to this property quite easily to get the rental gain to push it into what most people expect from a property. Thus improving it’s appeal to a wider range of people.
Making improvement to the standard property pushes the property into the higher end of what is affordable, and starts to move out of the budget who would be in the lower half of potential tenants, thus lower demand. Making improvements to an already feature rich property pushes things even further out of the sphere of affordability for the area, further reducing the demand, and so of course your ability to demand a higher price for the improvements.
It is an assumption the earning capacity is relatively similar in a particular area/suburb, we’ve got some nice rich/poor segregation going on.
Basically, I’m just wanting to either confirm or deny that there is a sensible limitation to the amount of improvements before the improvements make less and less or an effect on the property. In addition that making improvements on a feature poor property is perhaps where money is better spent, aligning the property with the expectation and needs of the bulk of the rental population, or target niche.
If this is true, then I am interested in taking this a step further and understanding the rental valuation and understanding what improvements would make the best enhancements to the rental value.
Another question, does anyone know if there is much in the way of acedemic research in regard to this? Or is it pretty much private study performed by organisations? Im guessing magazines would probably be the place to occasionally find this kind of data.
I hope I’m not asking the blindingly obvious! [weird]
Chance favors the prepared mind.
im unannounced* – Statement may not be factual.
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