Renovating where you live vs an investment property

Renovating your home and renovating your investment property are two very different things.

The real estate boom is fading and property owners of all walks of life are considering renovations as a way to improve their homes and pump up their equity.

Serviceseeking.com.au chief executive Jeremy Levitt said more home owners were using equity to renovate now their properties had increased in value.

“Many investments in the property boom were for undercapitalised property and land, where home owners and investors purchased with the intent of renovating and capitalising,” he said.

Year-on-year, the number of renovation jobs posted on ServiceSeeking.com.au has increased by almost 10 per cent, as the appetite for real estate and The Block-style home improvement rises.

But renovating your home and renovating your investment property are two very different things.
Renovating his waterfront home in Sydney’s south, buyer’s agent Todd Hunter is spending $1 million and going to painstaking efforts to pick the best quality, top-of-the-range fittings and fixtures.

When renovating his $400,000 investment properties, he spends just $20,000 and less than a month.
“In an investment property you’d resurface bathrooms, maybe replace handles and benchtops in the kitchen, whereas in my own home I’d put in everything new,” Hunter said.

He’s not the only investor who knows that there’s a big difference between renovating where you live and renovating to make money.

Cherie Barber, founder of Renovating for Profit, said home owners should know the two are chalk and cheese.

“One is emotion and comfort-based, the other purely about the financial returns,” Barber said.

The first question any renovator should ask is who the renovation is for.

Demographics

When renovating an investment property, it’s all about who you are trying to impress with the renovation and your end goal. If you’re renovating your own home with intentions to live in it for five or more years, the demographic is yourself.

When the home is an investment property, the demographic is who you expect to buy the home when it is sold – an outcome heavily dependent on location and the type of home you have bought.

In Sydney’s Lethbridge Park, Barber renovated a $440,000 property with a $48,000 budget in 10 days in 2015. Its post-renovation value was $520,000.

Yet not all renovations for investment properties are best done cheap – when looking at higher end homes, higher end buyers will expect more.

In Sydney’s Leichhardt a property Barber bought for $950,000 was renovated with a $1 million-plus spend. The home sold for $3.06 million in mid-2015 and achieved a profit of more than $1 million.

Quality and style

Understanding the demographic will quickly allow you to know what you should be spending and the quality to aim for.

Right Property Group director Steve Waters said when it’s your own home and that demographic is yourself, that would include the high-quality fixtures and fittings you’ve always wanted.

“But for a rental property you always want to go the budget range,” he said.
“Having said that, be careful not to go too budget where your repairs and maintenance and things break down more often than not.”

Both Waters and Hunter have set colour schemes, types of paint and handles that allow them to replicate the same renovations repeatedly on different properties, while buying the products cheaply in bulk.

With an eye on the return on investment, or how much is gained per dollar spent, every purchase is strategic for expert renovators who meticulously keep a close eye on their expenditure to ensure they’re not overcapitalising. Barber spends a maximum 10 per cent of an investment property’s value when she renovates and keeps things neutral.

When it’s your home, you can indulge in your personal tastes as lavishly as suits – whether you spend over and above what you might achieve in a future sale is less relevant.

“Choose colours that you love, fixtures that you personally like because ultimately you’ll be looking at those things every single day,” Barber said.

“These things and the overall space you create need to make you happy and they need to be an extension of the individual that you are. So it’s no surprise, that home owner budgets tend to be limitless in this regard – you’re creating a home not a house,” she said.

However, sometimes your tastes aren’t going to be appreciated by the next buyer.

“So if there’s any chance you may sell your own home in the foreseeable future, it would be wise to renovate your home in the same manner as an investment property,” she said.

Time is money

When choosing to renovate your home, your decision on how long to take and when to renovate will largely be dictated by your lifestyle, funds available and other personal considerations.

With an investment property, time is money and every delayed day or week is a mortgage repayment you have to make, often without a tenant in situ.

Sticking to tight deadlines and schedules, it is possible to co-ordinate tradespeople to come at the same time from the early morning, Hunter said.

While this suits his investment properties, he said being woken up at 7am every day by tradespeople in your own home wears thin.

“It’s almost the opposite when renovating a home, dragging it out longer to allow you time to get it completely perfect,” he said.

When to renovate

Renovating your home is a personal choice, but renovating an investment is a strategic business decision.

Some investors will look to renovate before or between tenancies, aiming to get the tenant to pay a little more each week, improve their cash flow and increase their equity.

Hunter said he wouldn’t choose this strategy – instead renovating before he sells.

“The properties I buy around $400,000 are bought by first home buyers, often with a 5 per cent deposit and no extra money to renovate – they’d rather buy a newly renovated home,” he said.

For investors who decide to renovate ahead of time, particularly in higher value locations with more upside potential, hard-wearing and durable products will be necessary.

Five “bang for your buck” investment property improvements

  1. Update your kitchen with a cosmetic refresh: Tile paint, laminate paint, resurfacing
  2. Update your bathroom: Speciality paints can quickly update a bathroom, as can changing coloured shower screens to clear glass
  3. Paint internally and externally
  4. Update your floor coverings: Rip up old carpet
  5. Change your window coverings: Replace old curtains with white venetians or plantation shutters.


This article was originally published on Domain on 21 November 2015. This article represents the views of the author only and does not necessarily reflect the views of AMP.

 

Renovation budget tracker

Keeping track of your renovation budget doesn't need to be hard. Our Renovation budget tracker will keep you up to date.

Get started

News&insights

Want to keep up to date with the latest news?

Subscribe now

Find an adviser

Choosing the right financial adviser is an important decision, which is why AMP has developed a tool that enables you to find an expert who is right for you.

Find an adviser

Want to keep up to date with the latest news?

Sign up now

Recommended articles

Important information

Show more

© AMP Life Limited. This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.