Adding Value and Increasing Your Return
Many investors are often open to increasing the rental return on their investment property – who wouldn’t be? But there are differences in maintaining the rental value or increasing it. Knowing the difference between these two items can also improve the saleable value of your asset in the future. It will also ensure that you are maximising its potential as an investment property.
But what is the difference?
The first place to start to ensure your property remains in good condition and maintains its rental return and value, is your depreciation schedule. This schedule gives you the age of your property assets and the lifespan of all items. Once items are past their lifespan, this is a great place to start looking at and budgeting for replacement.
The ATO has a downloadable guide for all asset depreciation (https://www.ato.gov.au/uploadedFiles/Content/IND/Downloads/Rental-properties-2022.pdf ) and it will depend on when the item was purchased (before or after 1st July 2019) but for an example:
- Carpets – 8/10 year lifespan
- Lino – 10 year lifespan
- Blinds – 20 year lifespan
- Cooktops/oven – 10 year lifespan
- Air conditioner – 10 Year lifespan
- Light shades – 5 year lifespan
This isn’t to say items have to be replaced past this age, but it may be a good start to budget as it will ensure your property maintains the value.
Other items that do not technically have a lifespan as they fall under capital works are:
- Screens and painting
Painting is often an item that is postponed over the years as it can be costly to repaint an entire house, internally or externally, but it may need to be done to maintain the value and current rental return. Often investors with an older style property may need to look at –
- restumping a property
- installing a new roof due to leaks or rust
- or replacing hot water systems
While all these things are costly and can improve the value of the property, they do not add value to the rental return. A tenant will expect that the roof won’t leak and that they have hot water.
Now adding value is different as you would be adding an asset. Adding value in turn increases the rental return of the property. This can also improve the saleable value of the property if you do choose to sell your investment property.
Some of the most sought-after additions to rental properties are –
- air conditioners
- security screens
- additional carports or sheds
All these items would increase the rental return if added to an investment property either during a tenancy (in consultation with the tenant) or can be done in between tenancies with planning.
If you are open to improving your investment property, talk to us today!