A cosmetic renovation is a great way to add extra value to your home without breaking the bank
Steve and Sarah purchased an investment property in Canberra – it was a 2 bedroom unit for $300k on the north side of Canberra.
They decided on this particular investment property because it was in a growing area of Canberra and there was potential to add value through cosmetic renovations. They spoke with their Canberra mortgage broker who assessed their borrowing capacity. They had a modest amount of savings but it was enough to be given the green light on finance for the investment property.
Not the nicest house on the street
At first glance, the unit was hideous. It was owned by an interstate property investor who wanted to sell up – he had a bad experience with the previous tenant and decided to give up on property investing all together.
Clearly, this unit didn’t appeal to everyone. First Home Buyers walked in and straight back out – it wasn’t the type of property they’d envisioned showing off to their mates.
However, Steve and Sarah saw potential. They looked pass the ugliness and realised that all of the issues associated with the investment property were cosmetic – there was nothing that needed to be changed structurally within the unit to make it liveable.
Renovating after exchange and before settlement
They were able to negotiate access to the property after exchanging contracts and before settlement to carry out the work. This meant they weren’t making any interest repayments on their investment loan during the time the renovations were being carried out.
The couple spent the next month carrying out renovations on the unit after work hours. Neither would consider themselves ‘handy’ when it comes to picking up a tool – however, a few YouTube clips on painting and tiling as well as some advice from the guys at the local Canberra Bunnings gave them the confidence to start.
During the month, they refaced the kitchen (with new cupboard doors) and a new bench top and sink, they painted throughout and also retiled the bath and added some additional storage in the bathroom. Some new light fittings and blinds also gave the unit a nice fresh touch.
How much did they spend?
All in all, the couple spent $5k on renovations. They went back to their Canberra mortgage broker soon after the property settled and asked for it to be revalued by the lender. The lender revalued the property at $345k – meaning the couple had just added $45k in equity. Not bad for a months work!
They were also able to achieve an additional $50 per week rent for their investment property. Which meant that their $5k spent on renovations would be paid back within two years.
The couple’s Canberra mortgage broker helped them access this newly manufactured equity and they were able to use it towards their next investment property purchase. Needless to say, the couple found another run-down investment property in Canberra that required cosmetic renovations and once again applied the same strategy as their first.
At last count, Steve and Sarah were sitting on an investment property portfolio of 4 properties valued at $1.5 million. Not bad for a couple of young public servants with a bit of spare time.
Just like a new car or any other new product – a new property generally commands a higher price. Just like that new car or product – the value tends to take an initial dip once that shiny newness wears off. With insurance, warranty and protection following suit. That’s one of the main reasons why non structural renovations of an older property can yield excellent results.
If you’d like to have Jamie provide advice on your finance structure, investment strategy, first home purchase, upgrade or refinance simply complete and return this FORM and he will be in touch – this is a FREE, no obligation service.
The information herein is not intended as investment, financial, legal, taxation, building, development or any other advice and must not be relied upon as such. You should obtain independent professional advice and make further independent enquiries before making financial, legal, taxation, building, development or investment decisions.