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Discover the secrets of successful property management and investing on "The Property Investors Handbook" podcast. Join Colleen Sutherland as she shares expert insights and strategies for acquiring, managing, and maximising returns on real estate investments. Whether you're a beginner or seasoned investor, this podcast is your essential guide to navigating the world of property investment. Tune in and unlock the keys to financial success in real estate.
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Welcome to the property investors handbook podcast. I'm Adam Bell and today we're talking investment property renovations with a special focus on those upgrades that will really pay off in terms of helping you raise the value of your investments. Colleen Sutherland from Sutherland's property management group.
is here again to share her wealth of knowledge on getting the best bang for your buck with property improvements.
Colleen, thanks for joining us today to navigate through the do's and don'ts of property renovation.
Thanks Adam.
Okay, so start us off by highlighting the types of renovations that typically offer the best return on investment for property owners.
So the renovations would be painting, painting, internal and or external carpets, blinds, and then you can go so far as lights and plumbing.
Okay.
All right. How often or when would you know to have to go ahead and do these types of renovations?
When your property is looking quite tired and you can't achieve the market price of today your property manager will review, at the latest inspection, whether it's an exit inspection or a routine.
And then during a routine inspection, we will, other than doing the inspection, we'll tell you to budget or ask you to budget for when this tenant moves out to paint, or we'll ask you to budget for the carpet because it's threadbare or whatever. So that it's not a rude shock, When this tenant moves out, we're getting a new tenant, but we're going to do a little bit of work before we get it back on the rental market.
Sure. So I gather then there's a difference between you advising a landlord to do this based on it needs it for the tenant, just because it's in desperate need and it's just what you need to do for the person living there, versus do this now because it'll increase the value of your property.
It sort of goes hand in hand really.
If you're wanting to increase the rent, even a hundred dollars a week the tenant has the right to challenge the landlord because he hasn't done anything other than basic maintenance during the tenancy, which is normal. You just do basic maintenance, but the tenant will let you know that the blinds are crumbling, or the carpet's threadbare, or the walls are in atrocious condition.
Those are the sort of things that you would either do, or you'd budget for when this tenant moved out. If you're going to do them, and the tenant will challenge you for the cost of the increase, They've then got a right to, and they've always got the right, but to negotiate the rent, that you're asking a 2024 price, which is the highest of high rental markets in a 1980s house, that you've done nothing for 20, 30, 40 years, but want the super high rents.
So you've got a way that the costs factor up.
But in that scenario, could a tenant says, okay, you're increasing it by a hundred, these carpets are really done at that, it's reasonable that you'd get the, and that the landlord can still just say, no I'll get a new tenant.
Yes. Then we're advertising the tenant with threadbare carpet. So it may not rent. at the price that you're asking. So you'd have to take a rent reduction anyway, but you've also got vacancy costs letting costs, advertising costs. So you've got a way up the full cost value of what is being asked of you.
Is it more common for a landlord to do these types of renovations when a tenant is exiting more so than a standard lease renewal at that point?
Yes. Because the, during the tenancy, we've been telling the landlord that you're going to have to do this and replace the carpet and we suggest you get new blinds and so create a budget.
Then when the time comes, if the tenant goes to move out then we'll say to you, okay, Mr. Landlord, we said, you need to do these budgeting, budget for these things And he'll go, yeah, yep, I've been doing that. So then we go about getting quotes and that sort of thing. But then there's a vacancy period of, could be up to four weeks while we line up all the trades, if we haven't already lined them up before the tenant moves out.
So it is a bit of a balancing act of being able to line the trades up, get them in and out and minimize the vacancy period. Yeah. Yeah. But to do a good job. Depending on how much you want to do. The other thing I would suggest is that you talk to your accountant. He will say, yes you should be doing these.
And then create the budget for you. Or we can create the budget for you. However, the accountant will to us to put it down as replacing the carpet, not putting in new carpet because it has different tax brackets when you're doing these sorts of renovations. Yeah. So you can either have a tax depreciation or then you have capital works and improvements.
So you have to have someone who knows how to navigate that minefield of the tax just to benefit, make sure the landlord gets the most benefit out of it. Sure.
Okay. And on average let's talk through this. So painting how I guess every place is different, but how often should a property be, be given a new lick of paint, throughout?
That's a good question, because we get that, ask that by landlords a lot. It's usually about seven years. Okay. And you're probably sitting there thinking, oh, but I don't paint my house every seven years. But you don't have people moving in, moving out. furniture and that sort of thing. So if you've had the one tenant for the whole time, you might get away with 10 years, but it will depend on how often the tenancy is changing over.
Sure. And what about carpets? They would last a bit longer, wouldn't they?
If the landlord chooses the cheapest carpet that he can, and there's some cheap carpet around and it looks great, but it doesn't wear well. So expect it only to last two or three years. So you're better off getting a medium grade carpet.
to last longer and wear better than having to replace it more often.
Sure. And what, how would you manage a situation whereby you're suggesting renovations, improvements that, that need to be done and, your landlord wants to cut corners and use a cheaper carpet or, get blinds that really don't, do the job, that it doesn't keep the light out.
How do you manage that difficult situation?
It's about managing how you speak with the landlord. So you're telling him that, yep, we'll go ahead with that carpet, but just know it is a very low end quality carpet and it may only last two years. So you're either pay 3, 000 now or 6, 000 and then pay another 3, 000 in, in a couple of years time, or you pay the 6, 000 and it might last a bit longer.
And yeah, So don't go high quality, but we ask them for a medium quality carpet or a wash and wear paint. Don't go the, just the trade paint that, If we wash it, all the marks will show up on the wall. There's a lot of logistics to it all.
Sure. So your knowledge in this area is just again, invaluable for your landlords to, to know all this because the average person just wouldn't know this stuff.
And again, another great reason to make sure you're using a great property management agency. But
just know that if you are doing the renovation of whether it's carpet paints, blinds, and all that sort of thing, all the upgrades, that is not part of what we do. So it doesn't come under your very standard management agreement price.
Yep. It is an added cost. So you can either do it yourself and that's perfectly fine. Or you can engage us, coordinate the trades and then there 📍 may be a fee of whatever. There's a lot of work involved in that. A lot of work, yes. And
again, like you said, the timing is so important to minimise the the loss of rent during the period if it's at the end of the lease.
That's brought up an interesting question for me. What about a time when it might get done in the middle? It's needed to be done or for whatever set of circumstances have brought that about that it needs to be done while there's a lease in place.
Okay, so what a scenario springs to mind where it's storm damage and say big branches come on the roof and it's cracked the ceiling and flooded the main bedroom.
And I've now got to fix the ceiling, fix the walls, change the car, carpet and all that sort of thing. What happens there is either we Negotiate a rent reduction for a period of time or we get the tenant to move out. If it's that bad, we get them to move out and then they don't pay rent. on, on this property, they'll be paying rent over there on that one.
And until they move back in, so there's got to be that's where you have those negotiations and draw up an agreement and then move the tenant out, make the renovations or repairs necessary, and then we move them back in. So it is a logistical nightmare, but it's one that we can do and try and do it with a minimum of fuss.
Fantastic. So look, the key takeaways for me on this subject is it is a bit of a balancing act on when and how much you do and how much you spend and weighing the benefits, the cost and rental benefits of that. But it's
also the benefits of the sale, so if you're doing these renos that you're looking to sell in 12 months, 2 years time, you're better off doing some of the big ticket items now so that when you do go to sell, you will be competitive in your sale price and remain competitive in your rental price.
Yep, absolutely. That's a wrap on today's discussion with Colleen Sutherland about maximising returns through strategic property renovations. So if today's conversation has sparked ideas and you'd like some more information, go and contact Colleen at spmg. com. au for more information. Thanks for tuning into the Property Investor's Handbook.
If you've enjoyed today's episode, please subscribe, give us a like, and share your thoughts in the comments. Your feedback helps us bring you more valuable content and lets us know exactly what you want to know about. So until next time, here's to making informed and strategic decisions in your property investment journey.
Colleen, thanks once again for joining us.
Thanks so much, Adam.