Is now the time to update your investment property?
26
Nov

Is now the time to update your investment property?

All-time low interest rates, combined with a buoyant property market in the ACT mean the “stars have aligned” for property investors considering making improvements to their investment property. Here’s why:

1. Low interest rates

Low interest rates ultimately mean more money in your pocket at the moment, which you can put to good use. Budget providing, consider wisely reinvesting this money into your property to future-proof it for when interest rates begin to rise again. This “reinvestment” could be made in the form of larger improvements, such as renovating kitchens and bathrooms, or simply updating flooring, repainting, or landscaping to refresh the property.  

The key is understanding interest rates will eventually rise, so it is important not to overcapitalise. Focus on judiciously making improvements which will contribute the most value to your property.

The types of improvements you opt for will vary from property to property and are determined by what your ideal tenant is seeking in a rental property. For example, an investor with an inner-city apartment appealing to young professionals may want to focus on achieving a contemporary look by updating kitchens and bathrooms and repainting/reflooring to update the interior. Conversely, investors with a larger house in the suburbs appealing to families may want to focus on creating family-friendly outdoor space and a functional layout with ample storage.

The pandemic has influenced the way many of us live and work. With the ongoing possibility of more lockdowns, many people are prioritising space to work from home, as well as outdoor space if we are confined to our property. Our new “pandemic lifestyle” is something landlords should also consider when making improvements to their property.  

Take the time to thoroughly investigate what your ideal tenant is seeking in a property, and make improvements to fulfil their needs. This will reduce the risk of overcapitalising on your property, as you will end up with a highly sought-after product.

2. Improve the value of your property

Making clever improvements will increase the value of your property in a couple of ways. Firstly, you should be able to increase your rental rate by offering a premium property. A refreshed property stands apart from tired, dated properties – tenants love moving into a freshly painted or renovated property, as it feels less like someone has lived there before them. Secondly, an increased rental rate, coupled with a premium property will hopefully attract high-quality tenants who will treat the property with respect and stay for the long-term.

You can depreciate certain repairs, improvements and assets on your property at different rates, over different time periods. For example, carpet and appliances will depreciate at a different rate. Have a conversation with your accountant to determine which improvements would be most beneficial for you taxwise. You may get more financial benefit by executing the improvements over two financial years.

As mentioned above, the key is not overcapitalising - you are not renovating to your taste or standards. Select good quality products in neutral colours which will stand the wear and tear of a rental property, whilst offering broad appeal in style e.g. a serviceable grey carpet that won’t show the dirt and complements most décor.

3.    Rental availability

Canberra’s rental market remains strong. According to the latest Domain Rental Report from June 2020, over the last year ACT house rental prices have experienced the highest increase of all capital cities at 4.5%, and unit rental prices have held. Both ACT house and unit rental rates have increased over the last five years by 28% and 22% respectively.

These figures present an enormous opportunity for ACT investors. Thanks to the public service and other businesses supporting government departments, Canberra’s job market remains relatively stable, so there is still a captive market requiring rental accommodation. Astute investors would do well to pitch their properties towards tenants employed in these sectors. 

4.    Supporting small business

This year has been particularly tough for many businesses, and the uncertainty of the job market has resulted in many people tightening their spending. The building and renovation grant introduced by the government earlier this year to keep trades employed has stimulated construction in some segments of the market. However, the scheme is quite specific, only offering $25,000 to eligible homeowners who spend at least $150,000 of their own money on improvements. The deadline for this grant to be accessed is 31st December 2020, so this scheme is also drawing to a close.

This scheme has been criticised for only appealing to a very narrow segment of the construction market i.e. homeowners (not investors). It is also means tested, capped at $750,000, and is not applicable to houses valued over $1.5 million.   

There is still ample opportunity for investors to support trades with renovation jobs falling under the $150,000 threshold, such as kitchens, bathrooms, painting and flooring. Investors can also support other home-improvement businesses, such as landscapers, and window treatment or furniture companies, for example.

There has never been a better time to take advantage of low interest rates and high rental demand in Canberra by taking your property to the next level. It will stand out from the rest, attract quality tenants, and provide solid rental return for years to come.

When you’re ready, we’re here to help you find your perfect tenant, and offer any advice you need along the way.

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