The two-storey three-bedroom property in Kingston, which was purchased back in July with a few maintenance issues, was left in a worse state by former tenants.
Instead of doing a quick fix, the investor decided to bear the burden of vacancy and do an extensive renovation: in contrast to simply wanting to improve his cash flow situation, his main concern is achieving tenant longevity.
According to Right Property Group’s Steve Waters, more than price growth, the longevity of tenants contributes more to an investor’s success.
He explained: “You can have a gross high rent, but if your tenants keep changing over it just erodes that netability.”
In order to accomplish his goal, Mr Tarrant needed to make sure that his property is as safe and livable as it is presentable. After the tenants vacated the property, the investor sought the help of professionals to help him make the most out of his investment.
“I need to make sure this is 100 per cent compliant … [to Occupational Health and Safety standards] … What can I do … to make it a better proposition for someone to rent … [and] eke a few more dollars out of a week than what I was getting beforehand?” he said.
Prioritising the safety of future tenants is not only about decreasing vacancy rates but, more importantly, a landlord’s moral obligation, according to Mr Waters.
The property professional highlighted: “Clearly, you never want to be a slumlord. That's just never going to get you anywhere and it's not morally correct.”
Mr Waters and Mr Tarrant outlined the renovations they plan to implement to improve the rental property and ensure tenant longevity:
Replacing broken window glass
According to Mr Tarrant, doing necessary repairs on windows is important because, before being an aesthetic concern, it is a safety issue.
“[We are] replacing broken window glass in [the] upstairs bedrooms. You've got to get that right—that's a safety issue,” he said.
The leaking upstairs bathroom has been one of the oldest issues in the property, Mr Waters said, and it ended up being one of the most expensive components of the renovation.
Mr Waters explained: “We had tenants in there and we didn't want to upset the tenants. We didn't want to disrupt the tenants either whilst there was cash flow coming in, but we did know that sooner or later, we were going to have to address that.”
After the tenants have left, they discovered that tiles were loose because it has only been laid over old Masonite—so as the water leaked from behind them, it has also started leaking downstairs. Tradesmen recommended removing the tiles and the old Masonite, resheeting with villaboard, waterproofing the floor area, and retiling over the bath and over vanity with grout and silicone—a process that will cost about $4,500.
Luckily, the team took advantage of the bathroom concern way back during the time of purchase and knocked off around $10,000 of the original selling price, which they plan to use now to improve the asset.
Full-yard cleaning and garbage disposal
Mr Waters described the yards that were left by the tenants as "The Amazon"—lawns are overgrown and there are garbage and pests everywhere.
The team decided to do a full cleaning for both the front yard and the backyard, which will cost nearly $1,000, Mr Tarrant said.
Fortunately, the whole bond was kept, which will certainly help in the overall renovation cost.
“Somewhere in that jungle [is] actually quite a well-loved garden at one stage, so that's all being revealed [now],” Mr Waters said.
As per the “less is more” recommendation of the tradesmen, Mr Tarrant and his team decided to remove the kitchenette downstairs—a process that will entail more than just taking down a part of the house. They will also have to look at pipes, wallboards, and tiles.
“[We’re] removing the old kitchen from downstairs and not replacing it, so … [we] got to cut back all the hot and cold water pipes … [remove] the wallboard, make good the damage, replace missing tiles on the floors,” the investor said.
This will give future tenants double the floor space, which Mr Waters expects to lead to more demand for the property and, ultimately, growth in value.
The property professional highlighted: “Even from a valuation point of view, [it’s good] because there's the comparables to support the fact that they will get that little bit more [space], as opposed to … a low-set standard three-bedroom, small, weatherboard house.”
According to Mr Waters, this step is not merely about boundaries but a full-scale renovation of the home’s exterior, including the pool.
He said: “I'm talking about around the house—the bushes [needed to be] cut back. [Then] … imagine the pool fencing that you have, which is glass … [It has to be] safety glass … because someone could just [walk] straight into that and cut themselves in half."
Finally, Mr Tarrant’s team will ensure that the floors are free of any issues that may lead to any untoward incident.
“Sand and varnish floors for upstairs—punch all holes, fill all holes in the floor, sand and varnish all floor area, two coats [for] the whole top floorboards,” he explained.
Mr Waters said that, aside from ensuring tenants’ safety, this will also provide longevity for the floor surface. The team expects this process to cost around $2,200.
Most parts of preventive maintenance require unskilled labour, but some investors, including Mr Tarrant, prefer to engage professionals to ensure quality work.
Moreover, they can also help you save time and money in the long run since their expertise pretty much ensures that you won’t have to go through processes again and again due to mistakes.
Mr Waters said: “I call it 'unskilled labour' because you … don't have to be licensed [to do it] … It's the stuff that adds up very, very quickly ... A handyman will be somewhere between $45 to $65 an hour, so it adds up.”
“[Simple repairs] would take ... a whole weekend ... if I was going to do it,” Mr Tarrant quipped.
After all the efforts and costs that will be dedicated to this renovation, Mr Waters does not expect any significant increase in the original rent price of $350—it could even go lower once the property is up in the market again.
“Remember, the market has come back and [the previous tenants] were a large family. They were potentially paying for the privilege to be there as well, being such a large family. We should be [leasing it for] around ($350), maybe a bit less,” he explained.
However, at the end of the day, there’s more to renovations than immediate rent price increase, he said.
The property professional highlighted: “[This] costs a fortune, and there's not capital upside, there's no cash flow upside, [but] it's a moral responsibility.”
“[Phil doesn’t] even have to do it legally in this scenario because it's a complying building from yesteryear, but from a moral point of view … [it’s his responsibility],” he added.
According to Mr Tarrant, being able to invest in property is a privilege, so you have to understand that you’re not merely creating wealth for yourself but also providing a home for other people.
If you’re unsure about how to keep your property up to the Occupational Health and Safety standards, he recommended engaging the right professionals to help you accomplish the job.
Tune in to Phil Tarrant's portfolio update on The Smart Property Investment Show to know more about the thought process behind the transformation of his rental property.