What’s the best return for your $20k? If you have an existing property portfolio I suggest some simple cosmetic work to increase the value of your
$20K doesn’t seem like much but it can go a long way if you are prepared to chip in some elbow-grease. Added bonus? If you go about it cleverly, you
could achieve a good return in a multitude of ways:
- Capital gain – A wise man once told me that for every $1 spent on improving the property, I should be gunning for a $2 return. So we are looking
at $40K from a $20K spend. But that’s not it. You could also extract that out of the improved property for further growth. For example, if
you had a property worth $500k with $350k lending against it (70% LVR) and renovated it with your $20k in cash following the rules above you’d
have a completed value of $540k. If you topped this property up to 70% of the completed value you could release $28k ($378k is 70% of $540k,
and your current debt is only $350k, so the top-up is the difference). This means you end up with a more valuable property, have your $20K
back and another $8K on top. Not bad!
- Rent yield – Some cosmetic work (for example, new carpets, painting and simple landscaping) can add value and increase a property’s rentability.
If you increase the rent by $20-$30 per week this might be another 5-7% in your pocket based on the original spend of $20k.
- Less ongoing maintenance costs – Sometimes doing work to the property earlier may mean that you reduce the amount of work that is required in the
future for maintenance. Looking after properties will make them last, and the cost of prevention is often cheaper than the cost to cure.
I am definitely biased because of my passion for property but I think if you had a spare $20k and wanted a good return – property is the best place
to put it!
I will be speaking at the APIA March Keynote meeting The good, the bad and the downright ugly (I
am doing the good!) to unpack my latest property project. My talk will touch on and explore further some of the themes mentioned here.
Come along if you want to find out more! As always, I am more than happy to connect with any APIA member to answer your finance-related question
or simply to share my passion for property! You can contact me at [email protected] or on 021 193 9333.
ABOUT THE AUTHOR
Ryan is a Key Accounts Manager at Kris Pedersen Mortgages and Insurance as well as a property