A carefully planned renovation can bring in extra rent and add value to your property – but there are pitfalls to avoid.
Making improvements to your rental property can enhance its tenant appeal, letting you charge a higher rent and adding to the property’s long term value. But there are serious financial considerations to weigh up.
First, if a major renovation like a new kitchen can only be completed if the place is vacant you could face loss of rent. In addition, landlords can’t normally claim mortgage interest as a tax deduction when the property is off the market (in other words unavailable to let).
Note too, money spent on renovations is regarded by the tax man as a ‘capital’ expense. This means the cost can be used to reduce the capital gains tax that may apply if the property is sold at a profit, but landlords can’t normally claim the cost of a renovation as an ongoing expense like, say, repairs or maintenance.
These issues may not be a problem if your rental property is seriously dated or run down. However where that’s not the case it can pay to look at ways to get maximum value from a low cost renovation.
One option is to add undercover car parking. A car is often a tenant’s most valuable asset, and if your investment property is in an inner city suburb, chances are on-street parking is at a premium. A simple car port, which can cost less than $3,000, could substantially enhance a property’s rental yield.
Or, increase storage space by adding built-in cupboards in the bedrooms. Hardware chains like Bunnings offer budget-friendly pre-fab products that a handyman can install in a weekend. Alternatively, if the property is located in an area of temperature extremes, installing air-conditioning can make the place more liveable year-round.
The key is to make improvements that will appeal to tenants in the local area. Speak with your property manager or a local real estate agent for a clear idea of what works for your rental investment.