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Renovating to add equity to your investment property

Tuesday, 2nd Jun 2015

renovatingRenovating can be a great way to increase equity in your investment properties – it can even help you achieve your next property purchase sooner.

Property investors primarily choose to renovate for two main reasons.

Firstly, so they can demand higher rent from tenants, or remain competitive within the market.

Secondly, to increase the value of their property – from which point they can use the added equity to purchase their next investment property sooner.

Utilising the right renovation strategies and techniques can help investors achieve great success.

Even in flat real estate markets when capital growth is sluggish, renovations can be a fast and cost-effective way to increase the value of your investment properties.

However, the wrong strategy can lead to budget blowouts or poor returns, which can be highly costly.

When renovating, investors must ensure any changes they make to a property are appropriate and fit the surrounding neighbourhood.

For example, there’s no point installing granite benchtops and premium kitchen appliances in a house that’s located in a low socio-economic area. Spending $50,000-plus on a new kitchen in a house that’s located in a ‘working-class’ suburb won’t necessarily be reflected in the value of your property.

Furthermore, the rent returns needed to recover the cost of such a renovation would likely be far higher than what you’re likely to receive.

So it’s important to avoid overspending and knowing the target market you’re renovating for.

Likewise, when renovating to increase equity in your property you must focus on the areas that will generate the best capital growth.

For example, completing major renovations on the backyard, such as adding a dining-alfresco area, isn’t likely to be the best option if the dwelling has an aging interior.

Typically, it’s best to focus on aging kitchens and bathrooms to reflect a more modern appearance.

If the budget allows, extensions can also be a great way to add equity to your property, particularly if you can add an extra bathroom, bedroom or living space.

When completing major renovations, it’s also important to remember the minor aspects as well.

A fresh coat of paint, new carpet and replacing dated blinds or light fixtures can go a long way to creating a complete transformation to your property.

Taking these factors into consideration can help save you thousands of dollars and may mean the difference between your project achieving major success or ending up a costly exercise.