Unlock Your Equity with Home Renovations
January 21st, 2013 • No comments
Property renovations have grown in popularity over recent years, as people have sought to boost the value of their homes by undertaking internal lifestyle upgrades.
The same trend is also occurring in the property investment marketplace, with astute investors purchasing older style properties, with the view to increase the overall capital value of the property and its rental yield.
This growing popularity of home renovations is underlined by ABS figures which show that last financial year the value of home renovations in Australia totaled over $6 billion. On average, a staggering $100 million is now being spent every week nationally on home renovations.
In States such as Western Australia and Queensland, home renovations are now becoming big business. Last financial year, nearly $600 Million was committed to home renovations in WA alone and over $1.2 billion in Queensland.
Over recent years, a growing sum of renovation spending has been focused in the mining towns of Queensland and Western Australia, due to the direct connection between the capital value of the properties and their rental returns.
In the Pilbara region of Western Australia, for example, more than $40 million was committed to home renovations last financial year while nearly $20 million was committed by investors in the Gladstone region of Queensland.
Astute property investors can add substantial capital value to older style properties in mining towns, especially if homes in the area are undervalued, run down or rented below the market.
Certain mining towns can be ‘Equityville’ for investors, as low cost cosmetic home renovations can quickly boost rental returns and therefore the underlying value of home.
However, investors need to undertake their research carefully before considering buying a property in a mining town for home renovation purposes.
Building costs are historically much higher in mining towns than metropolitan areas, so home renovators need to set a realistic budget and ensure they appoint reputable contractors. Local agents on the ground can assist in this process.
In addition, it’s important to undertake a suitable renovation that appeals to the towns leasing market and therefore maximizes the full rental potential of the property. Again it is important to understand that the requirements of tenants in mining towns can be very different from tenants in larger cities.
I recommend starting with a smaller more affordable property that requires just cosmetic improvements, such as new carpets and/or internal repainting. In more established mining towns such as Port Hedland, Karratha or Gladstone, there is a wide selection of older style apartments and homes that lend themselves to these types of low cost renovation projects
Renovation properties or “Value-add” investments as they are known are a fantastic option for investors looking to get an instant equity foothold in the positive marketplace. While some purchasers may wait years to realize strong capital growth, savvy investors can realize the same goal in a much shorter period, by taking advantage of the renovation opportunities.
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