Hello Guys,
Great site.
Recently I secured a block of 4 units on one title. I got them for a reasonable price at below market value. With interest rates on the rise I am thinking I need to do what I can to get the units producing as much cash as possible to achieve postive cash flow. I also have a couple of other properties. They are costing me about 50 bucks each a week to have. My strategy is to hold on to them, increase the yield, but more then eventually implement an exit strategy. I fear however that I will run into the dreaded DSR if I dont get them making cash.
Currently they are leased well below market rate. The agent looking after them said that they would continue to be leased out at that rate without a problem, however future rises would be challenging given their condition. They are in original condition….by original I mean the previous owners have not touched a thing.
Structurally they are fine. The building is in excellent condition however the interior is not great.Thus I am asking for advice here. (I am meeting with Land Agent tomorrow to discuss how much units could be rented for once a renovation has been completed). Is there a set formula for rate of return on investments for renovations. I want to get the yield above 8%.
Any advice would be great.
Hi,
I can't help you with a 'formula' but I can highly recommend a basic reno to not only increase yield, but also increase equity in the property.
Many of my clients spend less than $10k-$15k on a reno and usually increase the value of the property by at least triple that. Actually I had a client a few years back who, when I told them how to reno their property, increased the value of it from (purchase price) $270k to $375k in just under a month. Granted, they bought well… but they also renovated well. They also increased their weekly income from that property by $135 per week from $240 to $375/week (they installed some whitegoods which helped increase the rental).
You'll find that renovating the interior will generally increase yield and renovating the exterior you will generally increase equity in the property. You are in the fortunate position of being able to renovate the entire exterior without having to compromise with other unit owners – which is an excellent position to be in especially if you're looking to manufacture growth in the property (and not necessarily have to wait for capital growth).
I usually recommend my investor clients spend no more than 5-7% of the pre-renovation property value – and you can certainly make a big enough change to a property within this budget. This is a fairly good way of making sure you don't over-capitalise which many investors/renovators are prone to do.
I hope that helps in some way.
Jane – Hotspace | Hotspace Consultants
http://hotspaceconsultants.com/home
Email Me | Phone MeRenovating for Profit specialist
Greetings Jane,
Thanks for the response. I was thinking around the 15K for the renovation which will around 9%. So far I have costed it out to just below that figure. I think this will be okay given the purchase price was below market value.
What are your thoughts on dishwashers in invesment properties?
Lastly I appreciated the tip on the interior to increase yield and exterior for equity.
Thanks again for your time.
draidis
If you have available under bench space I would suggest it was a great idea, same as a clothes dryer. Unfortunately tenants have a propensity for breakups and one partner left one of my rentals recently with a rangehood and a dryer. Still chasing him.
My advice would be to bolt them down from now on.
A small unit with a dishwasher and an air-con is ideal. So is the extra rent it would achieve.
Good Luck
DD
Hi again,
It does depend on the area your property is located in and the expectation from potential tenants. A good idea is to contact local property managers to see what the competition is up to. Do other properties in your units' price bracket offer a dishwasher?
Of course it is always nice to have a dishwasher so people are likely to pay a little more. However, if you need to spend $2,000 buying the dishwasher, having it plumbed in and reconfiguring the existing kitchen cabinetry to make it fit (which will include flooring etc…), it might not be worth it.
Best idea is to get a price on installing the dishwasher (whether into new or existing cabinetry) and the other 'periphery' costs. Then work out what your return on that cost is going to be.
If the numbers stack up and there is a definate demand for a dishwasher in the suburb your units are in, then I say go for it. However, if you could get away without a dishwasher and your return is marginal – then perhaps consider leaving the dishwasher out.
Hope that helps,
Jane – Hotspace | Hotspace Consultants
http://hotspaceconsultants.com/home
Email Me | Phone MeRenovating for Profit specialist
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