Hey y’all! Naomi Findlay here, your rapid renovation guru.
Last time we looked into the right approach to renovating for wealth. It was all about the importance of having an end goal and the three main steps involved in renovating for wealth.
But why are you wanting to renovate anyway? Beyond just to improve or update the property, what is it that you are wanting to get out of it?
Maybe you’ve seen a friend do it, or you have a creative flair that needs to make itself known through renovation.
Whatever the reason, there’s no right or wrong answer here. We all have our different wants and needs, and no one has the key to the perfect reason.
Each of us is motivated by different things in life, and it wouldn’t be realistic to expect everyone to follow one hard-and-fast rule. My motivations may be completely different to yours, and that’s totally okay. At the end of the day, it all about what works for you.
If you’re feeling undecided about what’s driving you to renovate, fret not!
In today’s post I’ll run you through the top five reasons that people choose to renovate. And hopefully after I’m done it will help you decide on what yours are, and then you can move forward in your renovation journey.
1. Renovating to increase equity
The first reason many people choose to renovate is all about the money. Well, equity, to be exact. If you’re looking to become a property investment tycoon, you need more property. The way to get more property (and in turn build your investment portfolio) is through equity.
Now, unfortunately, equity doesn’t grow on trees. The market is also generally a slow-moving creature that takes a while to build equity, which requires a lot of time and “sitting” on the property. So we need to grow it in another way. The perfect way to do this? Yep, you guessed it: renovating. When you renovate an existing property in your portfolio, you essentially give it that power boost it needs to up in value.
The increase in value from renovating is where your growth in equity comes from. And that equity growth gives you the opportunity to purchase more property (that you could renovate for further boosts – and so on and so forth).
2. Renovating to increase rental yield
The second reason that’s very popular with people who choose to renovate is to boost interest in their rental properties. This reason could tie in well with the first one, as renovating to increase your property’s worth is also likely to increase the rent you can charge.
What better way to attract good tenants than to give them something worth paying for? These days renters are becoming more and more picky with what they want in a property. A good quality renovation will give them a reason to pay a little extra for the comfort of an updated living space.
3. Renovating to sell
Last time I spoke to you guys about one of a property investor’s key strategies. Remember the popular “buy low and sell high” rule? It was all about buying something that was below or at market value, and then spritzing it up with some good renovations to then sell it at a profit. Well, this is what this reason is all about.
It is probably one of the most popular reasons to renovate as a lot of money can be made when house flipping is done right – the less you hold it, the less money gets sucked up by mortgage repayments and the rest of it.
The return on investment, or ROI, here is created through the renovation process. And if you score a property that has unique value-adding opportunities, these opportunities can be realised to create lots of value for you.
4. Renovating for personal enjoyment
Ah, the Australian dream. Buy a house, settle in, and enjoy.
How about buy a house and renovate it to suit you and your family’s lifestyle – that is the modern Australian dream. Buying a rickety old shack and making do is not good enough.
And that’s what this fourth reason is all about; creating an awesome space, a personal sanctuary, an escape from the hustle of the outside world.
This reason is not about the money, or the equity, or the potential to sell later on down the track. This one is all about you, and making you happy. Because there’s no point renovating for profit if you come home to a space that isn’t right for you.
With this reason, there’s no immediate intention to sell following the renovation. So there might not be an immediate profit. But beyond the advantage of renovating for personal enjoyment and happiness, this reason would still see the value of your property increase due to the physical upgrades of the space. A nice bonus, don’t you think?
5. Renovating for capital growth
We’ve made it to the end!
This final reason is one that many property investors use to give their capital growth a boost. Capital growth is all about sitting on a property and waiting for the market to rise.
It’s called the “buy and hold” strategy. First, you renovate the property for a jump start in value (in other words equity, like in reason number 1). And then you hold on to it for that traditional trickle of capital growth.
The renovating part of things can come into the capital growth plan at any point in time: you can choose to renovate as soon as you buy the property, or hold off until tenants move out. Renovating can even be done just before you sell it. Either way, the time you held it for plus the boost from the renovation would see you with a nice ROI.
As you can see, there are many reasons you might choose to renovate. The house flipping reason that has been made popular by mainstream television may work for some, but it definitely doesn’t work for everyone.
A lot of these reasons also cross over and overlap, so you might be looking to boost your equity while increasing your rental returns with a future plan of moving into the place yourself after the tenancy is up.
Just remember that you don’t have to follow in your neighbour’s footsteps. Nor do you have to stick to the same reason – your reasons may change as your circumstances do, and that’s totally fine.
Just don’t fall into the trap of thinking that there’s only one model for property investment that will bring you wealth.