Actively adding value means that aside from capital growth, gentrification and other market pressures, there are things that you can do to actively improve the value of your investment. These things include renovating, subdividing, extending, or a myriad of other things to improve property value. The cash flow can be influenced enabling the investor to hold the asset for the longer term even in a down cycle. Rent can be increased after an improvement to the property, adding furniture (only to certain types of properties, renting out by the room (if it is the right type of property for this strategy) or other creative techniques.
The ability to influence both value and cash flow is a very powerful technique giving the investor a control over property which is virtually impossible in other asset classes, such as shares.
Even physical assets like gold and silver are subject to market conditions (and manipulation) without control. No matter how shiny they are when you buy them, and how much you polish them up and make them look amazing, their value is still 100% subject to market forces rather than on what you do to them.
Renovating
Renovating properties is one of the simplest and most cost-effective ways to actively add value to your property. Keeping properties updated also increases the rental yield and attracts better tenants.
Structural changes and shifting walls or changing floor plans can be expensive, but many properties can be improved dramatically within the existing floor plan by adding a new bathroom and kitchen, replacing carpet, polishing up existing floorboards or other new flooring, putting in floating floorboards, tiles etc. Often, if tiling or floating floorboards are required, it can be added on top of the existing flooring to save the cost of removing floors.
New window fittings, the painting of window frames, and replacing doors can also improve a property’s appearance.
The street appeal can also be improved by simple landscaping using bark and drought-resistant plants. Although South Australian tenancy law requires that tenants look after the garden, it is always advisable to make the garden as low maintenance as possible to avoid lengthy legal battles about garden maintenance.
Subdivision
There are many Adelaide suburbs that allow subdivision of blocks. The West Torrens, Charles Sturt, and Port Adelaide Enfield council areas in the western suburbs of Adelaide tend to have larger blocks, more affordable properties (compared to the Eastern suburbs), and are more favourable for subdivision and development.
If a property is zoned for subdivision, an application can be made through the local council to subdivide and create two (or more) titles, either side-by-side or one behind the other, depending on the block size and configuration.
There are multiple costs involved in subdivision as there are application fees, surveyor and planning fees, and costs for SA Water to issue a new account and meter to the new title.
There are a number of ways that value can be added to an investment property through subdivision. If you are subdividing a house with a large backyard, the yard itself can be subdivided. The newly subdivided block can be sold separately and the profits added to the mortgage of the existing house making this investment property more passively geared. Please note that the driveway of the front house will become a shared driveway to be used by any dwelling built at the back of the block (unless there is side access through a corner block). In many cases, a new garage, carport, or off-street car parking space can be created by modifying the front yard – using concrete, gravel, or paving to allow room for a car. Having off-street parking is desirable for a rental property as this is often a deal breaker with tenants when they are comparing other rentals in the area.
Another way to make money is to keep the newly subdivided block and build a new rental property on it.
Development
Building a new rental property at the back of an existing rental property is considered to be a small development. Depending on the block size and council regulations, a number of rental properties can be built in this way. Developing properties is a much higher risk than renovating and subdividing and is also more costly. As with anything of a higher risk, the profits can also be higher as the new dwellings are built from scratch.
At ALEXA Real Estate, we have a number of videos on our website detailing the process of subdivision. Go to http://alexarealestate.com.au/property-development-video-series/ to view the videos and the process. The basic principle is to obtain council approval for the build using building plans, obtaining building finance, and sourcing a builder. Contact us at xenia@alexarealestate.com.au for a building quote.
About Xenia and ALEXA Real Estate
Xenia is the Principal and CEO of Alexa Real Estate www.alexarealestate.com.au. Xenia developed alexa real estate from concept in 2006 and it has now expanded to a rent roll of over 300 properties and 10 staff members and the company enjoys massive growth every year due to a strong focus on specialisation and solving difficult, specialised property management problems
See Xenia’s real estate blog here: http://blog.alexarealestate.com.au/
Xenia is also an entrepreneur, has developed several businesses in the areas of real estate and self development and is married with 3 children. Xenia loves to share her passion through writing and has written books on in the areas of millionaire mindset, emotional resilience and human consciousness. She has appeared as a keynote speaker on many stages around Australia and overseas including sharing a stage with Bob Proctor at a wealth creation conference in Europe.
Xenia’s books:
Don’t believe everything you think or feel: https://www.amazon.com/Dont-Believe-Everything-THINK-Feel/dp/1507594895
Your Inner Journey to Wealth:
https://www.angusrobertson.com.au/books/your-inner-journey-to-wealth-xenia-ioannou/p/9781456854294?gclid=EAIaIQobChMI3oeky-qN2gIVGiUrCh0l1woWEAYYASABEgLaLfD_BwE
Prior to discovering her gift in developing businesses Xenia was a medical research scientist obtaining a PhD from Flinders medical centre followed by a 3 year post doctoral fellowship at the university of Saskatchewan, Vaccine and Infectious Disease Organisation in Canada. During her post doctoral years Xenia published 8 medical research papers in top medical journals and travelled around Canada and the USA speaking at scientific conferences about her, now patented, vaccines and research.
Other social media pages:
FB: https://www.facebook.com/xenia.ioannou.33
LinkedIn: https://www.linkedin.com/in/xenia-ioannou-290898143/
Twitter: https://twitter.com/XeniaIoannou
Blog: http://blog.alexarealestate.com.au/
Property management information brochure:
http://alexarealestate.com.au/marketing-material/property-management-brochure.pdf
