One of the advantages of investing in property is that you can make improvements to enhance its value and consequently your personal wealth. A disadvantage is that dwellings require ongoing maintenance, and this expense reduces an investment property’s cash flow.
Minimising or avoiding maintenance costs is often a false economy. Maintenance cannot be avoided, only deferred. Problems either remain unresolved or they get worse. Either way, you will have to complete the maintenance at some stage or accept a lower (eventual) sale price, as most potential purchasers will factor in these costs.
How much should you spend on maintenance and improvements?
As a general rule-of-thumb, it is a reasonable expectation to spend circa 0.40% to 0.75% p.a. of a property’s value on ongoing maintenance. You may not need to spend that each year, but over a 10-year period, that would not be an unrealistic expectation. Houses tend to require more maintenance than apartments.
Items that increase rental income
It is important to ensure that your property is in good tenantable order so that its comparable to other properties in the surrounding area. Also, it is wise to look for items that will enhance or maximise its rental income. Such items tend to include:
§ Air conditioning, particularly in apartments, is highly desirable and can often increase your weekly rental income by up to $20. That is a pretty good return on investment considering a split system cost around $3k to $4k to install.
§ New carpets.
§ Re-grouting tiles in kitchens and bathrooms. Not only is this good preventative maintenance, but it can have a positive impact on a property’s appeal.
§ Sprucing up bathrooms and kitchens. It is advisable to maintain both the kitchen and bathroom to the same standard, otherwise it looks a bit odd. These projects can be completed cost-effectively by replacing the flooring (e.g. new vinyl), painting cupboard doors and replacing handles, replacing benchtops, appliances, tapware and so on. Avoid full kitchen refits where possible.
The standard of any maintenance and improvements must be in-keeping with the area and in line with tenant expectations.
Items that increase the value of a property
Completing maintenance typically preserves a property’s relative value. However, completing improvements often increases a property’s value, although its typically a once-only improvement.
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