After seven years’ worth of planning and preparation, Smart Property Investment’s Phil Tarrant and his financial team have successfully purchased a $1,000,000-block of land with five properties, which almost instantly gave them a 7 per cent yield. But could that be improved through renovation? One buyer's agent says no.
The actual rents of each of the five properties range from $270 to $275, and while $5 may seem like a small amount, it definitely matters, according to buyer’s agent Steve Waters.
He explained: “Technically, it also helps serviceability, right? [As well as the] ability to hold.”
“There's a couple of reasons why there's a little bit of discrepancy there, [like] the … the length of the tenancy … [and the appearance of the property, cosmetically and internally].
“My advice is, now that this is settled … just to bed it in. Get the lay of the land, let's see what [the tenants] come to us as … [also] in terms of repairs and maintenance, if any. We can take it from there,” Steve added.
According to the buyer’s agent, putting up the rent by another $5 is not really worth it if it takes $10,000-worth of renovation.
One of the possible ways to deal with the differences in rent is to boot out all the tenants from the five properties and install all new and identical kitchens, bathroom, carpets, gardens, and the like.
Is it worthwhile doing that? “Not at this stage,” Steve said. While this strategy would bring the properties value in line with other complexes in the area, it won’t necessarily make a significant change in Phil’s portfolio.
He said: “It wouldn't be something I'd be doing now … [because the properties are not] uninhabitable [that we should] do something right there, right then [to] increase its value dramatically. These are not that type of property. We've bought them well [and] we want time to do its thing here.”
In a year’s time, or even just close to the opening of the new university nearby, it might be more productive to do a renovation—a new coat of paint and new kitchens and bathrooms, hopefully, to take advantage of the ‘knock-on effect’ brought by the wave of students and workers alike.
Steve said: “In this market here, there's a massive demand sub-$300 per week … We're at $275—do we want to spend $15,000 each unit making them brand new to get an extra $10, $15 dollars a week?”
“That's a big expenditure … There's nothing wrong with these. They're more than habitable, they're doing their job, they're all rented. I'd rather use that $75,000 to perpetuate into something else,” he added.
Instead of doing a full renovation, a property investor with this type of asset may opt to do a minor weekend renovation—a strategy that has already worked for one of Phil's previous investment properties.
For his Mount Druitt property, Phil got everyone involved. He moved the tenants out on Friday, renovated the property, and moved them back in on Monday morning. It was basically brand new after the quick renovation—new kitchen, bathroom tiles, power points, light switches, carpet, paint, and much more—all for about $16,000.
According to the property investor: "That was good, that was really interesting. Let's do that [again]. I reckon when this campus comes along, we'll get our timing right."
"There'll be a point in the market where we go, 'Hang on a second, these things cost us $199 [but] we can turn them to $300,000-ers at a point in time.' Might be four, five years away ... [Just] drop $15,000 on it," he concluded.
Tune in to Phil Tarrant’s portfolio update on The Smart Property Investment Show to know more about the benefits buying in bulk, the purchases fundamentality for the portfolio, and the opportunities it will bring as a hub for economic growth and development.