How Much to Invest in an Investment Property

Investing in a property is just the first step—knowing how much to invest in maintenance, upgrades, and renovations is essential to maximise returns without over-capitalising. While there’s no one-size-fits-all answer, general guidelines and careful planning can help you make informed decisions. At Ross’s Discount Home Centre, we frequently assist property investors in balancing quality improvements with budget-conscious choices to protect their investment.
In this article, I’ll first provide research-backed insights on typical investment ranges for maintenance and renovations. From there, we’ll dive into practical tips to help you assess your property’s needs, determine a suitable budget, and avoid over-capitalising. Whether you’re looking to increase rental income or boost resale value, these strategies will ensure every dollar you invest works to your advantage.
How Much Should You Invest in an Investment Property?
When considering how much to invest in an investment property, a general rule is to allocate about 1-2% of the property’s value each year for ongoing maintenance, with additional funds set aside for larger renovations as needed. For example, on a $500,000 property, a yearly budget of $5,000–$10,000 for maintenance and minor upgrades is typical. For more substantial renovations aimed at increasing resale value, consider investing around 10-15% of the property’s value. However, this depends on your property’s current market value and the expected return on these improvements.
If your goal is to increase resale value, targeted renovations can be a smart move. According to Top Priorities for Home Renovations, adding value to a property before selling is one of the most effective ways to maximise return on investment. Kitchens and bathrooms are usually high-impact areas, while simple upgrades, like new flooring or fresh paint, can also make a big difference without a hefty price tag.
With this ballpark in mind, let’s explore how to assess your specific property needs and plan your budget effectively, so you can avoid over-capitalising while making worthwhile investments.
Tips to Maximise Your Investment and Avoid Over-Capitalising
So, how do you know when you’re over-capitalising on your investment? Continue reading as I share with you some tips to help you identify how much to invest and how to avoid over-capitalising.
Get a property valuation
If you haven’t been following the real estate market for the suburb of your investment property, the first step is to call your property manager or a local real estate agent and arrange a free property valuation. Chances are, the value of your property would have changed since you bought it, so you need to base your decisions on its current market value. Doing so will help you make an informed decision on how much to spend.
Study rental prices in your suburb
Along with a property valuation, you will want to know what the current benchmark is for similar dwellings in your area. Don’t be fooled into thinking what you have been getting for the last year is the right rental price. (I fall victim to this – I was getting $80.00 a week less than I should have been getting because my property manager never raised the rent.)
Jump onto realestate.com.au and do a ‘Rental’ search for a comparable property in your suburb. Doing so will give you an idea of what rent your property should yield. As a basic rule of thumb, you should be getting 10% of the property valuation.
If your property is in a more affluent area, then you will be able to invest more than if your property is in a lower socioeconomic area.
Improve your investment to meet the rental benchmark
If you find that your rent is not performing to the benchmark or you’re well under 10% of the property value, then you need to look for ways to increase the rent through property improvements. Consider installing an attractive (yet budget) kitchen, such as this one here from Ross’s Discount Home Centre or installing fans and air-conditioning. A new kitchen under $10,000 can increase rent and your sale price significantly.
Create a budget and stick to it
The easiest way to over-capitalise on any investment property is by not setting a budget for repairs or renovations. You need to know precisely how much you can spend on the property before you start. For every dollar you invest, you should expect at least double in return.
Maintain your investment property to avoid major repairs
To reduce having to invest in major renovations, keep your property in a good state at all times. Change agents if your property manager isn’t informing you of maintenance issues – you need to be on top of all issues and fix them before they become a major problem. Keep paint fresh, garden neat, deck oiled, repair roofing problems and gutters clean. These simple improvements can save you thousands and prevent you from over-capitalising.
Conclusion
Investing in an investment property goes beyond the initial purchase—ongoing maintenance, repairs, and strategic renovations are essential to maintaining and increasing its value. However, knowing how much to invest is crucial to avoid over-capitalising. Start by assessing your property’s current market value and setting a realistic budget, ideally around 1-2% of the property’s value annually for maintenance, with additional funds set aside for larger improvements.
If you’re not achieving the rental income or resale value you’d like, consider targeted upgrades in high-impact areas, such as the kitchen or bathroom, which offer strong returns. Stick to a budget that aligns with your property goals and avoid costly, unnecessary upgrades in lower-impact areas.
To ensure you get quality results without overspending, choose reliable products at competitive prices. At Ross’s Discount Home Centre, we offer a wide range of kitchen, bathroom, and home improvement products at unbeatable prices in Perth. Shop online or visit our Guildford showroom, and we’ll help you find the right solutions to maximise your property’s value without breaking the bank.