3 more types of value adds for a property
Continuing the discussion from my previous blog, let's look at a few more value adds that can be done to a house on a piece of land, including strata title of land as well as renovations, both cosmetic and major.
1. Strata title
The simplest way to understand strata titling is “splitting one into multiple” — in a sense similar to subdivision of land, but this term is more commonly used in units/townhouses, as strata title will involve some common area.
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The biggest difference between a subdivsion and strata titling is that a subdivision does not have any common area — each lot will be its own, while strata titling will involve some form of common area such as stairs in units or driveway for garage and these will be used and shared by all lots.
For this reason, strata titling is mainly used in townhouses or units, where there could be an old apartment block that is available for sale as a whole, an investor can purchase the whole apartment block as a single title (maybe four or five units), and then go through the strata titling process to split each unit into its own. Before strata titling, the whole apartment block would be known and registered as for example, Lot123. After strata titling, unit one would then become 1/Lot123, and unit two will be 2/Lot123 and so on. After each unit has its own strata title then essentially each unit can be sold by its own!
The concept is simple, but in reality there are quite a number of steps and hoops to jump through. I have outlined them in very simple terms:
- An investor will need to check whether there are any restrictions to the current lot or land, such as size or disposition that could potentially prevent strata titling from proceeding;
- Once the restriction aspect is cleared, there will need to be a strata plan drawn up to clearly outline common property and each lot; and
- A community management statement will need to be prepared to include by-laws and lot entitlements.
Once all the plans and relevant documentation have been completed and in place, then the individual lots can be registered and the body corporate will then come into the party.
You can also strata title two houses on a block of land separating each into its own lot. Some people do this in order to be able to sell one off without having to sell both (on the same lot). In NSW this is known as "duplex" — two houses on a single lot.
2. Renovation - Cosmetic
In my view, cosmetic renovations can be as simple as repainting a bedroom to as complex as a complete kitchen renovation. Either way, the goal of cosmetic renovation is to improve the value of the property, and as a basic rule of thumb, for every dollar you spend on a cosmetic reno, you would want to get two dollars in return.
Cosmetic renos are usually lower risk in nature and are more suited for everyday investors. They can be applied to all property types including houses/townhouses/units. There are builders who only purchase dumps and focus on transforming the property via cosmetic reno and then flip at the end for a profit.
As you can see, if done well, cosmetic reno can have excellent rewards in both gaining equity as well as increasing in rent should you wish to keep the property afterwards (plus making the property more attractive to securing a decent tenant!).
Note the idea of cosmetic renovation is to transform the appearance of a property without changing the building structure.
3. Renovation - Structural/Major
Structural renovations are the ones that change the building structure fundamentally. Examples include house extensions, adding a second level or extending additional space out towards the backyard.
Structural renovations are usually costly, so it is not commonly deployed as an investment strategy. They are more likely to be carried out by owner-occupiers who would like to improve living quality at home or needing additional space due to growing family.
If purchasing a new home proves to be too costly, such as the current situation in Sydney property market, then structural renovations on the existing home could be a more viable solution in comparison.
Nevertheless, for home owners, it is definitely a way to improve the value of a property whilst being able to enjoy the fruits of renovation.
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