7 tips for improving your investment property through renovation

1) Plan your renovation and put a budget in place. 
As a general rule, investors who want to make good money from renovation strategies within a decent time-frame will shy away from properties that require: 

• Adding rooms
• Putting in a pool or spa
• Fixing foundations or
• Undertaking other major restructuring work

Renovations should be generally cosmetic if you are looking for a quick turnaround in the buying and selling stakes.
  
A good plan of attack is to tackle one area at a time in this order:

• Front of house
• Kitchen
• Bedrooms
• Bathroom
• Entertainment areas
• Gardens

Sure, these projects can be simultaneously ongoing, but it's often best to have some sort of order in the chaos that renovating often brings.

Work out exactly how much you can afford to spend and do not exceed this value during your renovations. Work out a contingency plan if the property does not sell right away - even putting tenants in and trying to sell to an investor while the place is rented might work, but always have a back up plan, always. 

2) Don't cut corners
Never put a property on the market that isn't in a finished state. Potential buyers won't know if you intended to do extra things that you didn't end up doing to the property, but they will not look favorably upon half finished bathroom, unfinished decks and kitchens without appliances. 

3) Ensure a point of difference
Potential buyers may have been around before you transformed the property.
Ensure the changes you have made are noticeable value adding benefits before you jack up the price and expect people to suddenly be interested in a property they decided not to buy a few months before.  Consider what else needs to be done if you have changed the property's use or functionality. Do you need to advertise the sale to a different market? How will you underline its new features?

4) Try to cover costs
Even if the market has slumped since you paid for the property pre-renovations, ensure you cover costs when asking for a sales price and consider the need to take away a real estate agent's commission and other sales costs also. 

5) Consider your new target market
A property that would have originally only appealed to renovators like yourself may now be a great business premises, family home, rental property or holiday home.  Determine who your target market is before you begin renovations, and when it comes time to sell, ensure the property still appeals to the market you had in mind.

The goal is to maximize the asset for the most minimum cost possible - and 
you could consider these tips:

• Modernizing the entry to the home to impress potential buyers
• Erecting a fence for privacy
• Repainting kitchen cupboards and changing door handles
• Replacing worn bench tops
• Putting in new taps and fixtures
• Re-tiling splash-back
• Painting everything a clean, neutral shade
• Replacing window dressings
• Fitting mirrors and other space enhancing objects

A good idea in Australia at the moment is to seek out 1970s homes to renovate. This period of home usually doesn't yet require any structural work, but cosmetically needs a total overhaul.  It is also a good idea to have two possible investment options in mind for the renovator in case it doesn't sell.  

Renovations do not always have to work towards the goal of immediate selling.  You may wish to renovate, revalue and then rent it out again!

6) Tax implications of renovating a property
The tax treatment of investment property expenditure and deductions can be a bit of a minefield. As an investor, before you commit to any significant expenditure on a property, it's a good idea to check out the implications with your financial adviser.

In general terms, repairs are regarded as a partial correction of some item that has become worn or damaged. The work undertaken brings the item back to its original condition. Replacing an inlet valve in a washing machine would be a repair and the cost would be fully deductible in that tax year. Partial restoration of a fence could be classed as a deductible repair, whereas if the entire fence is replaced it is more likely to be considered a capital improvement.
    
Renovations or capital improvements involve more substantial structural work or major changes - there is no provision for an immediate deduction for these costs, however capital works deductions can be claimed over many years.
  
A renovation or capital improvement would be regarded as work which results in improved function or efficiency, and is likely to increase the value of a property, such as re-modelling a kitchen or adding an extension. A point to watch with any major renovation or structural change to a rental property is that there must clearly be a benefit in terms of attracting tenants, generating higher rental returns or adding capital value.  Consult your financial adviser if you are unsure of any tax implications to avoid unwanted headaches.

7) Don't over-capitalise
The last thing you want to do is spend thousands of dollars making improvements, which you will either not be able to recoup or make the property lose its market appeal.  An example of this might be spending $40,000 on a wonderful in-ground swimming pool, but put it in the front yard instead of the back yard.  Swimming pools aren't for everyone, especially if all your neighbours and passers by can see you splashing around...
  
It can sometimes be a difficult decision to make - at what point will the improvements I want to make no longer be profitable.  Seasoned investors will
learn from their experience but savvy investors will seek out people who have made the mistakes and learn from other peoples fortunes and misfortunes.

If you want more advice on renovating your investment property, have a chat to John at JFU Bayside Developments today.