Letters to Tully #8: Does Added Value Actually Add Value?

Listen in as Graham “educates” his eldest child on the ins and outs of buying investment property. Lesson #8: Adding Value to Investment Property.

Dear Tully,

 Firstly, congratulations on the new job. Not only will you have extra pocket money, but you will also now have the privilege of paying board. I call this a privilege because it is a great life lesson! So, welcome to the learning.

Last time I mentioned that some people invest in property due to the fact that you can also add value to properties. This is an interesting concept because adding real value is something that most don’t really think through. 

Doing up a bathroom for $25k isn’t probably going to add $25k to the value of the property or increase the weekly rental. But adding a bedroom via a sleep out that adds say $150 per week to your rent does add value (if it's less than 10 square metres it may not even require council consent). If it costs 10,000 it’ll pay for itself in 66 weeks.

I’m not saying don’t do up the bathroom of your rental but just think about what you will get in return. If I had a five bedroom flat and had the ability to turn it into a six then I would seriously look at putting a bathroom in because it would add some value. For example, what sort of tenants would want to live in a 6- bed home with only one bathroom?

Beautifying the gardens again might look nice in the short term, but turn out to be a total waste of money as tenants may not have an interest in keeping them up to scratch.

The key question to ask is this: What does my dollar spend bring in turns of increasing rent and adding end value? If it doesn’t do either then save the money as a deposit for your next rental.

 

Graham Goodisson is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.