The number one rule with any investment property is to never over-capitalise. But the unfortunate thing with investment properties, as with all homes, is that you constantly have to invest more and more money into them for repairs, maintenance and renovations.
The million dollar question is ‘how much should you invest in your investment property’? As this varies from case to case, there is no set answer that everyone can follow.
At Ross’s, I often meet customers looking for products to help them complete repairs or maintenance on their investment property, and also those who are doing a complete renovation to prepare their investment property for resale. One of the reasons why investors turn to Ross’s for their home improvement products is because we’re known for offering quality products at the lowest prices, which is what you want with your investment property, right? – To get maximum value from your investment.
But how do you know when you’re over-capitalising on your investment? Continue reading this article 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 be basing 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 home 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 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 and gutters clean. These simple improvements can save you thousands and prevent you from over-capitalising.
Investing further in an investment property is inevitable. Maintenance, repairs and even renovations need to be constantly carried out to upkeep the property. However, it’s vital not to over-spend when doing so. Therefore, know the value of your property and ensure you’re getting the right rent. If you’re not getting as much rent as you could, invest in renovations that yield the greatest returns. Stick to a budget and make sure your property is always in good condition to avoid major repairs.
To help make sure you don’t over-capitalise when making repairs or renovating, source quality products at the lowest prices. For this, turn to Ross’s Discount Home Centre. From new kitchens and bathrooms to tiles, tapware and appliances; you’ll find everything you need right here under the one roof and at the most competitive prices in Perth. Shop online or visit our showroom in Guildford, Perth.