Adding value to properties
From 2001 to 2011 I called myself a full time property investor. I specialised in finding run down 1960s & 70s houses, modernising, fixing any problems then renting them. I also traded properties on a rising market, adding value by a cosmetic reno, subdividing large sections then selling.
In my experience the most important advice that you can pay for, is from your building inspector and Valuer.
If you have purchased a house under value then it will generally have sat on the market for a while. Nobody wants it because it’s different from the norm or it has a problem. The key is knowing the difference between a fix-a-upper and a cosmetic renovation. A fix-a-upper is when most of your costs are spent on non-value adding tasks. You need to purchase the house cheap enough to spend this money, fix the problem and still make a profit. It’s crucial to get your budgets accurate and know, through the help of a building expert that your problem will be fixed and not spiral out of control (leaking homes).
I like to deal with a cosmetic renovation. Look for an average home in an average suburb that first home buyers would be happy to purchase when it’s all shiny and new again. Look for small problems that turns buyers away. A hole in the bathroom floor and ceiling from a leaking roof-fixed with a $5 roof tile. Dirty smoke stained rooms and ceilings-school kids washed the house. Mouldy smelly house-leaking shower head and lead head nails on the roof letting moisture in. Dated and dirty house-time to get to work.
Your valuer is now important, giving you an idea of before and after values and being able to budget your costs to within 20%. The market which the valuer is guiding you on will give you the end value, not how much money you have spent. Every $ has to be spent in the right place. The visual is where the added value is. Replacing wiring, plumbing, hot water cylinders, windows and insulation could cost $10000 but will not add much value to your renovation. Painting, replacing carpet, lights, plugs, door handles, kitchen, bathrooms and tiling wet areas. Outside, prune trees, tidy gardens, add mulch for easy care, add a deck for outdoor living and a garden shed if no garage. I’ve completed many of these renovations for under $20000 on 100m2 houses by doing most of the work myself. Buy 10% under value, increase value 10% with a renovation and you have a 20% gain without relying on the market for capital growth. With experience and some hard work, cosmetic renovations are less risk than fix-a-upper and a great way to build equity in property.