Should You Renovate Your Property Before Renting It?
Dilleen Property Group 2022
Through my years of property investing, I believe in most cases, no you should not renovate your investment property before renting them out to tenants. However, it ultimately depends on the property. In the past, if the property needs a slight renovation in order to get a tenant into the property then I have done this. However, I wouldn’t spend unnecessary money on renovations when it doesn’t need it right away.
For example, if I bought a property that is below market value, located in a good growth area, has a good yield, and it didn’t need a renovation right away, then I wouldn’t spend my time and money getting it done right away. This is taking out the emotion of property investing. Some investors will spend thousands of dollars just on a renovation due to the emotional factor and wanting a property to look good even though they are not living in it.
If it’s a 10-15 year old kitchen that is still functional, and you have spoken to the property manager who said it is still in good shape, then I would not spend thousands of dollars on renovation costs. You don’t need to go above and beyond with the best styled fittings. Property investing to me is about creating wealth, setting up your financial goals and having a passive income.
“Property investing is about creating options – Eddie Dilleen”
Unfortunately, a lot of investors get stuck with only 2-4 properties due to this exact reason. Throughout my journey I have learnt an abundance of knowledge, and I find it unnecessary to spend the money on a renovation when it does not need it.
Another question that I always get asked relating to renovations is “but doesn’t renovations help the property go up in value?”. The answer to that question is sometimes. Unfortunately there is no yes or no answer. However, yes it can be done to create equity. As mentioned, I have done a few renovations before in the past. Would I do it again? Not really.
In terms of creating equity and completing a renovation, ultimately this will depend on what valuation you are going to be receiving. As an example, you may get an extra $20 a week on a property that you have renovated, which amounts to $1,000 annually. In my opinion I wouldn’t say it’s worth it. For me personally I would take that $10,000 and contribute that to another house deposit.
If you have less than 10 properties I would focus on creating more deposits, rather than having one house that has amazing renovations. You aren’t working a lot of capital. Use what capital you have to leverage your portfolio safely with the cash flow itself, the growth and by buying under market value.
I am not here to say that properties don’t need renovations, however if you are doing it for the sake of it, in my opinion it is not worth it. Ask yourself is it going to get me to my next property quicker?
Let’s say you spent $10,000 on renovations and you go to get your property valued (previously at 400k) and you hope that spending $10,000 will increase it by $30,000. It is important to look at the comparable sales, as you can’t assume that it is going to go up in value. You need to look at other properties in the area. I suggest looking at RP data, or speaking with a mortgage broker to get multiple valuations. There are four types: full valuation, desktop valuation, drive-by valuation and automated valuation.
If you do a renovation they will undertake a full valuation. You will also want to do this because they are going to see the actual quality inside the property, and they can see all of the different measures you have gone to so they can see how you have tried to improve its value. Depending on what you want your property valued at, you need to speak with a professional who has done this multiple times before. Ask other people who have been in the same situation before as it will be highly beneficial. With the valuations in mind, there are a thousand different variables, and generally the full valuation is the most conservative. To get it valued higher I have found that I didn’t need to do a renovation at all, I just needed to look at the comparable sales.
Disclaimer: This is not intended as legal, financial, or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature, you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.
