Landlords - Renovating for Profit

Landlords - Renovating for Profit

Renovating for profit is one of the top strategies that you, as a rental property investor, can use. Though many landlords do not put much thought into renovating for profit, the truth is that the small segment of investors who do renovate realise a much stronger cashflow. Simply put, making over your rental property, or renovating it for profit, is a very powerful and effective way to improve your cashflow.

The reasons why renovating is so effective is clear to see once you have got an understanding of how money flows through your investment properties. First off, one must know that rental property investors have got to have more money coming in, from incoming rent payments and equity accumulation, than money going out, through property management fees, mortgage interest, maintenance costs and so forth. When more money is going out than is coming in, your property is negatively geared.

There are many reasons you do not want to own a negatively geared investment property. First off, you simply don’t want your investments to cost you each month. Secondly, without a positive cashflow, you will not be able to leverage your profit into a larger and more powerful investment property portfolio.

So, what can you do to turn your negative property into a positive?

Well, first you need to look into how you can increase the rent of your property without making significant capital outlays, or, by leveraging your cashflow by financing the improvements you make. For example, using your own money to finance new carpet and painting throughout a property could cost perhaps $9,000. Now, if this improvement allows you to increase your rent by $250 a month, it’d take three years for you to get your money back ($9,000/$250 = 36 months). This is not a great investment to make when you use your own money.

Now, if instead you finance the work by folding it into your mortgage at 7.5%, you’ll have to pay $675 a year ($9,000 x 7.5%) or $56.25 a month ($675/12) in interest. Since this renovation will bring in an additional $250 a month. This is a great investment when financed, since, after all, increasing your monthly cashflow by $193.25 a month is a tremendous outcome.

These are not just paper figures. They represent real dollars that you can put in your pocket or, better yet, leverage to acquire additional investment properties. In fact, one recent Rentbuilder client invested $4,500 to paint her two bedroom flat. She was then able to increase the rent by $160 a month for the following tenancy. Given the monthly interest repayment at 7.5% on $4,500 is $28, she improved her cashflow by $132 a month, or almost $1,600 a year.

If you’d like to find out more ways to improve your investment property’s cashflow, call 1300 768 464 or contact us for more information.

Renovating for profit.