A quicker way to build equity rather than waiting for capital growth is to add value to your property. We can target a property that may need a decent coat of paint to a new kitchen or bathroom. Some of our clients are tradesmen, and we target very rundown houses that we pay land value for and then over a period of time these properties get fixed up, tenanted and then held. This can mean a greater capital appreciation and also reasonably good rental returns if the renovation is well done.
However, this is not as easy as it sounds and there are inherent risks. The main one being that you want the property value to increase by more than you spend to improve it. I know this sounds simple but it is the fundamental issue that plagues most people trying to “flip” properties.
Many who watch The Block on Channel 9 and sees the contestants winning huge amounts of money can become delusional and believe they can buy a property, paint some walls and sell it for hundreds of thousands of dollars more than they paid. The fact of the matter is, it is nearly impossible to purchase a property, do a simple renovation, and then sell for a profit. The cost of buying and selling makes up approximately 10% of the purchase price of the property (Government charges and stamp duty and then Estate Agents selling costs). This means that if you purchased a property for $400,000 and sold it 6 months later for $500,000 and you had spent $30,000 on repairs and $10,000 on interest to the bank then you would have only made about $20,000 which would be taxable income, so the average person would then lose another 30%. The risk is also that you do not get $500,000!!
There are good ways to value add to speed the growth in your portfolio, Ask us how.