When leasing an investment property, naturally you will want to receive the best rental return for it.
Maximising the rental return doesn’t mean you need to spend money on adding new rooms or significant renovations. In fact, the most cost-effective improvements are often the simplest.
Quick and easy fixes
The simplest thing you can do to add value to your property is paint the front door. First impressions are vitally important when attracting tenants and an appealing entrance is the first step.
A fresh coat of paint can hide a multitude of sins and give your whole property a fresh, modern look at a fraction of the cost of other additions.
Before you rent the property, it is recommended to have a registered professional such as a plumber check that there are no leaking taps and that these meet any minimum criteria set by your state government for passing on water usage charges.
It is also worthwhile having an electrician check for any flickering lights to have these fixed and to take care of any other outstanding maintenance.
Tidying up the yard by removing weeds and adding fresh mulch or wood chips can give a property street appeal and any work completed will go a long way to convince potential tenants that everything is in good working order.
Landlords should also ensure that an adequate number of smoke detectors have been installed in the property and that any cords attached to internal window coverings or blinds can be secured away from reach.
Larger investments
Potential tenants will look at dated or rundown kitchens and bathrooms as reasons to negotiate a lower rent and sometimes you won’t attract the calibre of tenant you want. Repairs to bathrooms and toilets should be considered urgent and vital to attracting quality tenants.
Simply replacing chipped or cracked tiles, adding a new toilet seat and a coat of paint can work wonders. However, occasionally a complete bathroom refit may be in order. Landlords who are planning on completing any structural renovations should speak with one of our specialist Quantity Surveyors before starting any work. This is because any items removed during a renovation may impact the depreciation deductions that can be claimed. Newly installed structures and assets also hold depreciable value that the owner can claim at tax time once the property is income producing.
A house can live and die on the quality and appearance of the bathroom and toilet, which makes any money spent here a good investment. The key for bathroom and kitchen renovations is to aim for clean simplicity, with neutral fittings and colours that will appeal to more people.
Make sure your upgrade suits your home
It is important to ensure anything you add to your property complements the existing décor, structure and location. Adding a hot pink extension to your Queenslander isn’t going to increase its value.
Other questionable investments, such as adding a swimming pool or spa, may not reduce the rental income you receive, but they also might not increase the weekly rent either. Items such as these can cost you a considerable amount to install and while a property which contains these items will allow you to claim depreciation deductions for the pool or spa and any cleaning devices or pool filters, not every tenant will want to rent a property where they will need to spend their time looking after these items. Often pool and spa editions can actually limit the tenants a property attracts.
The key is to understand the market in your area, the features of other houses available for rent nearby and the expectations of people looking in the same neighbourhood. Your first port of call for this advice will be a local Real Estate Agent or Property Manager. They will be able to give you a breakdown of similar properties and help you make informed, valuable improvements to your house.
Depreciation deductions and residual values when renovating
As we explained earlier, the good news when completing any renovations is that they can add to the depreciable value of your investment.
Any construction work completed to a residential property after the 15th of September 1987, regardless of whether you owned the property at the time, can be claimed at a rate of 2.5 per cent per year for the life of the property or forty years. This means that even a twenty year old kitchen that looks a little dated and worn still has considerable depreciation deductions available for the owner.
Investment property owners may be able to take advantage of claiming any residual depreciation for items that are thrown away or demolished during a renovation. For example, if a bathroom in a property constructed twenty years ago in 1996 is replaced, based on legislation enforced by the Australian Taxation Office (ATO) the owner will still be able to claim another twenty years’ worth of deductions for the structural items the bathroom contains.
The depreciation available for plant and equipment items contained in the bathroom such as shower curtains, bathroom accessories and hampers for example, will vary as these depend on the individual effective life and depreciation rate set by the ATO. This means landlords should consider the age of each of item and how much value is remaining. Even things that may seem tired and worn out may have considerable residual depreciation value. Demolishing, replacing or discarding items should be a carefully considered process.
Keep it simple
Ultimately, an investment property isn’t a house you will live in and any work should bear this in mind. You don’t want to alienate any prospective tenant by adding too much of your own taste as this will be their home, not yours and you don’t want to over-capitalise on your investment with unnecessary and expensive renovations.
Above all, aim for simplicity with your renovations and let the property speak for itself.