….Clever Cosmetic Renovations….

Late last year a fabulous client of ours was the successful purchaser of this 1970’s townhouse in Yarraville. Situated near Seddon station, equi-distant between Yarraville village and Seddon’s cafe strip, and offering a great floorplan – this townhouse had a lot to offer. What it lacked however was modern appeal.

We knew our client would find a tenant if she kept the property as-is. But what could a cosmetic renovation do for her in terms of quality-of-tenant, rental return and capital appreciation? It all came down to purchase price…

When the hammer fell on $525,000, we were pretty excited.

We had preserved some of our client’s budget for her proposed renovation costs.

The question about cosmetic renovation is always an interesting one. There are THREE reasons why an investor would be well placed to consider conducting renovations on an investment property:

1. To bolster up the rental yield

2. To improve the quality and longevity of the tenant

3. To increase the capital value of the property by more than the cost of the renovation.

Many investors get caught out with renovations. They either over-capitalise (put more money into the renovation than the value of the improvement), neglect to calculate the total cost of the renovation (including holding costs), or they don’t cater to the target tenant with a suitable renovation.

This investor nailed all three positive reasons to renovate – and she did it with style.

Not only did she increase her anticipated gross rental yield from 3.7% to an actual yield of 4.1%, her property manager signed up a great professional couple, and she arguably added more value to the property’s capital value than the total cost of her renovation and holding costs.

Tapping into the local target tenant market was a wise decision. Ample storage, a fully functioning and appealing kitchen, new flooring, a redesigned stairway railing and a fabulous bathroom were the significant items which made a stunning difference. Great carpet selection, clever lighting and simple landscaping ensured that this once-daggy 70’s townhouse suddenly had modern appeal for professional tenants who valued this great locale.

Running a great spreadsheet and managing costs is one thing. But relating well to tradespeople, being fast to offer compromise, and always remaining pragmatic is what I enjoyed most about working with this wonderful investor.

Her property will exhibit growth and deliver attractive rental returns at today’s rental return of $475pw, but most of all it will give her peace of mind that she’s maximised it’s value with cost-effective improvements.

For under $600,000, this project is one we’re proud to say we played a part in.

Photos sourced from REA and Googlemaps