You may think renovating is cool and you could get plenty of satisfaction out of it, but there is a right way to investment renovation – and a wrong way. To get it right, one of Australia’s brightest young property investors recommends forgetting everything you’ve seen on The Block and following these three rules.
1. Be very clear on the ‘why’
Stephanie Brennan, who by the age of 25 had accumulated an impressive seven-property investment portfolio, says there are two types of renovations.
“There’s a renovation you do on the house that you want to live in and then there’s a renovation you do on an investment property,” Ms Brennan told The Smart Property Investment Show podcast.
The outcome from renovating an investment property is different to renovating a home to live in.
2. The return must be tangible
Ms Brennan said money spent must have a tangible return in immediate cash flow increases and long-term capital value.
“The reason you’re spending money on it is because you want to try and manufacture some equity.
“If the property’s worth $200,000 today and you can spend $20,000 on it and it becomes a $250,000 property, that’s a good reason to be renovating.”
It’s important to keep your eye on capital growth and an increasing yield when you’re considering renovating an investment property.
3. Never over-capitalise. Ever.
Ms Brennan said one of the biggest mistakes people make renovating investment properties is they renovate it as if it’s a property they want to move into.
“And they overspend ... over-capitalize, is the right term for it,” she said.
Typical over-capitalising mistakes include either doing the wrong type of renovation or choosing inappropriate fittings.
“Knocking down walls, for example, to make open spaces and losing bedrooms changes the market feasibility of a property,” Ms Brennan said.
“Or if you can put a $20 or a $50 tap in that’s going to work and not break in the next five years, why would you buy something which is $400?”
“It might look really nice, but it does the same thing and that is to make sure water comes out so tenants can wash their hands.”