To renovate or not?

[fisherman99]

Hi

i recently purchased a 1 bedroom unit in mt eden, auckland. The bathroom is on its last legs and the kitchen etc is a bit dated and worn down.

The decision I have is wether to retain the tenant (around 5% yield) or renovate the bath and kitchen etc and get an estimated rent increase of $50+ a week. Also this is my first time renovated so am unsure around costs to do up bathrooms and kitchens?


thanks

[jimO]

bathrooms and kitchens = $$$$$$$$

[Momo]

If you are keeping as long term rental, I think its better to do it early than later,you will get better tenant who will look after the property better, but if you are just waiting for the right time to flick it off, then just repair what is needed and renovate when you are selling it.

[TheLibrary]

http://www.propertytalk.com/forum/sh...ear+deductible

This thread has some good advice.

[Axel4Life]

After 45 + years as landlord I prefer to renovate later after it has been tenanted for a while.

[donna]

The cost could get quite ugly if something unforeseen is found but we had to get the Kitchen and Bathroom done before we tenanted a property as both rooms where really nasty. It's had long term tenants though so it was the right move for that rental.

cheers,

Donna

[DaveW]

It depends what your goals are.

[PTILoveYou]

Depends what you are after.

If you just want the increased rent, and not bothered if the place has gone up in value or not (recycle equity), then I would suggest renovate it after the current tenant is gone (you may claim repairs and maintenance if you renovate after the tenant is gone, talk to your accountant). You can always put up the rent to market rent for the property if the current rent is below that.

Kitchen & bathroom I would say $8-10k for kitchen, and 5k for bathroom.

Kitchen would include:
- new cabinates (granite benchtop preferred)
- new stove
- ranghood
- tiled floor
- tiled splashback

Bathroom:
- vanity
- toilet
- shower box
- normal towel rail (not heated)
- mirror
You can get a complete package of above for bathroom around $1500
- mixers & taps
- plumbing
- tiled floor (don't tile the walls or it will be more expensive)

[smilverpeech]

Hi Gary, can you recommend a good renovator for those prices? Thanks.

Depends what you are after.

If you just want the increased rent, and not bothered if the place has gone up in value or not (recycle equity), then I would suggest renovate it after the current tenant is gone (you may claim repairs and maintenance if you renovate after the tenant is gone, talk to your accountant). You can always put up the rent to market rent for the property if the current rent is below that.

Kitchen & bathroom I would say $8-10k for kitchen, and 5k for bathroom.

Kitchen would include:
- new cabinates (granite benchtop preferred)
- new stove
- ranghood
- tiled floor
- tiled splashback

Bathroom:
- vanity
- toilet
- shower box
- normal towel rail (not heated)
- mirror
You can get a complete package of above for bathroom around $1500
- mixers & taps
- plumbing
- tiled floor (don't tile the walls or it will be more expensive)

[Rosco]

Hi

i recently purchased a 1 bedroom unit in mt eden, auckland. The bathroom is on its last legs and the kitchen etc is a bit dated and worn down.

The decision I have is wether to retain the tenant (around 5% yield) or renovate the bath and kitchen etc and get an estimated rent increase of $50+ a week. Also this is my first time renovated so am unsure around costs to do up bathrooms and kitchens?


thanks

Hi,

From a tax perspective.

1) If you buy a property, and do major renovations within a short time period, then the renovations are NOT repairs, and they are a cost of buying the property. With no depreciation on building, if the costs are capital (cost of buying) then they are likely to also not be depreciable, so there would be no deduction at all for the renovations.

2) If you have a rental for a reasonable period, then it needs renovations such as painting, plastering, bathrooms and kithchens, then these will most likely be repairs, unless you go beyoud the existing, such as by adding a new room, extending the kitchen etc. As repairs, the renovation costs can be claimed as an expense against the rental income, most likely giving you a loss if the renovation costs are high.

This brings the question of what is a reasonable time. My opinion is that if you do the renovations within 6 months of buying, then it is a capital item and a cost of buying the property. 6-12 months is kind of a grey area. After 12 months should be fine.

There is also another twist, if you purchased the property at a discount as there was an item wrong, then the cost to fix this item will be capital. So say you got $5,000 discounted during the due dilligence period as the fence needed repainting. If in 18 months you painted this fence, this would still be a cost of buying as you especially got the $5,000 off the purchase price to do it.

Overall, you either do renovations early to get good tenants and good rent (my preference as a landlord), but miss the tax deductions, or you wait and get the tax deductions but have a poor tenant with less rent.

Ross

[nick_pv]

Thanks Rosco, didn't know the distinction there.

Will add to that a little...

If your renovations would cost (hypothetically) $20,000 all up and you get $50/wk more then that's $1000 yr or a 5% return on your $20K spend. Since you make 5% yield now there's not a lot of benefit in doing it before the tax benefit kicks in UNLESS you want to fund this with lending at current (low but rising) interest rates.

[flyernzl]

I renovated a South Auckland unit last year.

Kitchen - everything including cabinetry removed and replaced except for existing freestanding stove.
Bathroom - everything including over-bath shower removed and replaced except for existing bath.

Had my handywoman do the work (apart from electrician and plumber) with myself as labourer.

Cost 12K.
Took longer than expected so you have to cost in loss of rent as well.

[nick_pv]

If people are unable to do part of the work because of location, health etc would closer to $15-18K be a fair estimate?