Property renovation is one of the most common strategies implemented by investors to improve cash flow, but is it the right strategy to advance your own wealth-creation journey?
Smart Property Investment’s Phil Tarrant has recently decided to renovate one of his properties into improve the asset’s value and generate a better yield.
According to the property investor: “[You can improve cash flow by adding] value to your property with view … Try and generate a better yield [through] greater rent … You [also] have the upside of … capital improvement, which improves the value of your property and [increases the amount of] money that you can use to draw down in equity.”
While you can do a renovation project by yourself, having a dependable team around you will help you make better decisions—from financing all the way to building. After all, different markets have different demands, and it’s best to have the guidance of local experts to determine the best way to go.
“Expertise can be bought. You just need to find the right experts to help you with the renovations,” Right Property Group’s Victor Kumar said.
A lot of people make the mistake of thinking that property renovation only entails making a real estate asset more beautiful. While aesthetics are certainly part of the project, the end goal is more than just a well-maintained exterior and a glamorous interior.
Phil said: “Undertaking a renovation is more than just doing [the glamorous stuff]—it's very strategic.”
One of the first things to determine before implementing this particular wealth-creation strategy is the type of renovation you want to do. You can opt for preventive maintenance, non-structural renovation, or structural renovation.
According to Victor: “What most people get wrong is they start to dive straight into a structural renovation... without really knowing the bits and pieces that go together, [then] they find that they're biting a bit too much … especially if you're doing it remote … [or] interstate because you've got several different factors playing.”
Before finalising your decision to renovate, consider the current state of the property and the demand in the market, as well as your capabilities and limitations as an investor. Renovations cost money, and it takes good strategic planning to make sure that you get the best returns and ultimately create wealth for the long-term.
Despite the benefits of property renovation, Victor recommends that investors study their portfolio first before implementing the strategy.
He said: “The best renovation is the one that you don't do. What you want to do is make sure that you're not renovating for the sake of renovating. You're not renovating for the thrill of it, just because you've seen the show on TV.”
“You need to ... make sure that you're renovating when it's absolutely necessary ... within your portfolio to increase the cash flow, increase the value, or [when] it is necessary because of the type of property you've bought and the demand from the market,” the property professional added.
For example, it might be a good time to renovate your property in Brisbane since the rental market has been slowing down due to a shift in investing activity. Having a property that stands out in the market will attract more tenants and, therefore, ensure good cash flow for you as an investor.
According to Victor: “The idea is that you need to work out whether the renovation is going to add to your bottom line—whether it's going to add to your equity or add to your cash flow.”
“The cash flow doesn't necessarily just mean that it gives you more rent. It could also mean that the property is rented out a lot faster in comparison to the other properties in the market at that time,” he concluded.
Tune in to Victor Kumar’s episode on The Smart Property Investment Show to know more about the different stages of renovation and how it can impact your portfolio in the long run.