Investment Property Rejuvenation – 10 tips to plan for success

Investment Property Rejuvenation – 10 tips to plan for success

A big part of boosting your property cashflow with a makeover is planning for your investment property’s rejuvenation before the current tenants give notice. Here are ten questions people often ask.

1. If I finance the makeover, will it make my property’s cashflow more positive?

Leveraging (or borrowing the funds) is a tool many investors use to multiply their investment results. Put simply, using someone else’s money to finance the work (interest only) means you can enjoy enhanced rental income the makeover provides but only pay the interest cost of the finance. That is, make your cashflow more positive.

As an example of this on a small scale, I recently installed central heating at a cost of $3,200 in one of my own properties. Rather than pay for it from my own pocket, I financed the work using a mortgage top up from my existing property loan with just a phone call to the bank.

Hence, interest only, it costs me $3,200 x  7% divided by 52 weeks = $4.31 per week to fund the central heating.

The next rent increase was $25 per week

That is, we increased our cashflow by $25 – $4.31 = $20.69 per week or almost $1,100 a year.

Now that’s for just for central heating. What if you were rejuvenating an entire property? The numbers are bigger as are the returns! In fact, it’s not unusual to see people improve their cashflow by as much as $10,000 extra in their pocket each year.

2. How long will should an investment property makeover or rejuvenation take?

For every day your property isn’t tenanted, it’s costing you money. For this reason, we believe it’s crucial that your makeover is planned and scheduled to hit specific timelines. Generally, with a bit of planning it can be done in a couple of weeks, (sometimes more is required for more complex projects) so you can have the property tenanted sooner and enjoy your improved returns.

 3. When should I engage the contractor?

As soon as you know the tenant’s moving out, start planning. This allows works to commence the day after the tenants move out, creating a much faster turnaround. This is especially true if cabinetry, bench tops, etc need to be manufactured off site by a third party.

4. What do I need to look when engaging contractors?

Choosing the right building contractor will make or break your project, and therefore your cashflow. See Ten Questions To Ask When Choosing Your Building Contractor for more information

5. What if I have issues halfway through the project?

Unfortunately, rejuvenation projects almost always dish up a surprise of some kind. You can’t always foresee what they will be but the important thing is that you and your building contractor do some contingency planning beforehand.

6. How can I ensure the work quality is up to scratch?

Work undertaken should meet industry standards. It’s a good move to discuss this with your building contractor before you engage them to ensure that you’re both in agreement on how things will be done.

It’s much better to have a robust conversation before works begin rather than a litigious one after the project has finished.

7. How do I know how much value the rejuvenation will add?

Whilst we’ve undertaken post-graduate research to identify the enhancements that will give you the best rental returns, we encourage clients to complete their own due diligence. Look at other rental properties up for lease in the same area. Fundamentally, consider comparable properties, allowing you to be fully informed about your project and the likely returns.

8. What are the industry standard payment terms for contractors?

The Building Contracts Act states that for projects less than $20,000 value not more than a 10% deposit should be paid. For projects exceeding $20,000, not more than 5% deposit should be paid.

You would also then allocate payment milestones throughout the project allowing both parties to manage any risks and project cashflows. Basically, it’s a way of keeping things fair for all parties.

9. What if my partner and I differ on what should be done?

Occasionally, owners of a property will disagree about the best way forward. At RentBuilder, we generally provide clients with a couple of options and advice about what will provide the most profitable solution.

I’ve found it’s often best, if there’s more than one client for a property, for there to be an agreed client contact who we can liaise with. Ideally, this person is available and can act on the behalf of both partners.

10. What warranties and insurances should be provided by the contractors?

Your works (if exceeding $12,000) should come with Home Warranty Insurance that will cover you should something go wrong in the future with works undertaken.

Only Registered Building Practitioners can provide this insurance so be wary of using unregistered ‘handy’ types as they can’t provide the required insurances - leaving you unprotected if something goes wrong.

To verify whether someone is registered or not, ask to see their ‘Letter of Eligibility’ and their builder’s registration.

To find out more about a successful investment property rejuvanation, contact us or call 1300 768 464

About Richard

Photo Richard ArmstrongRichard Armstrong is a Director of Melbourne firm The Makeover Group which provides the RentBuilder service that delivers Positive Cashflow Property Makeovers.

He possesses over a decade of property makeover experience and post graduate property qualifications (RMIT), having researched what property enhancements give the best returns in the Victorian property market.

A Registered Builder (DBL37456), he is the author of the books RentBuilder – An Experts Guide to Cashflow Positive Property Makeovers (soon to be released) and Sell Your Home For More in Any Economy.

Richard is an active and experienced property investor who contributes to Australia’s leading property publications and websites. He has helped hundreds of clients add millions of dollars (collectively) to their property returns.