Low housing supply can make things frustrating for investors seeking to leverage on their existing properties.
And at a time of cheap finance, it can make more sense to eke out better rental returns and capital growth by renovating. But renovation as a value-adding strategy requires caution.
It’s important not to over- or under-capitalise. Finding a renovation sweet-spot that justifies expenditure demands skilled assessment of many variables. Before advising investors to renovate a property, we identify its profit potential and also determine whether cosmetic update or structural work is the best strategy. Some houses we’ve renovated have layouts that lend themselves to reordering of living spaces for better returns, and some have had dead space which we’ve reworked to extend or add rooms.
Determining a house’s value-adding potential also involves calculating the minimum outlay to maximise yields, capital value and tax write-offs in accordance with ATO guidelines.
The trick is to balance the numbers. A profitable renovation can be a good strategy when housing supply is low, but the numbers need to add up, and shrewd planning and project-management is necessary to avoid common pitfalls.
Until next week,