With the cost of living still dominating the headlines, inflation (though easing) a constant worry, and building costs remaining high, many homeowners are hesitant to take on major construction projects.
Having said that, most property owners are always looking for ways to boost the value of their homes or investment properties.
We’ll explore which additions – like swimming pools, granny flats, and outdoor entertaining spaces – offer the best return on investment, considering both investment properties and owner-occupied homes.
Swimming pools
While undeniably appealing, a swimming pool is generally not a financially sound addition to an investment property. Even excluding the initial construction costs, the ongoing maintenance is substantial and not something that can be reasonably expected of renters.
For owner-occupiers looking to head down this route, the expenses associated with pool installation are typically two-fold. First, there’s the cost of the pool itself, with options including concrete (often tiled) or fibreglass, as well as the filtration system. Additional expenses may include heating systems, such as solar, electric heat pump, or gas, to extend the swimming season.
Secondly, beyond the pool itself, are the landscaping costs. This includes safety fencing, paving around the pool, and any necessary garden work. For homeowners who have installed pools, you’ll often hear that landscaping expenses can equal, or even surpass, the cost of the pool itself.
For cheaper builds, a pool installation might be achieved on a budget of roughly $50,000 to $100,000. However, it’s crucial to remember that in many instances, the cost can significantly exceed this range, reaching upwards of $250,000 to $300,000, particularly for concrete pools with elaborate landscaping.
This considerable expense warrants careful thought, especially given Melbourne’s climate, which allows for perhaps five to five and a half months of pool use per year.
Historically, the cost of installing a pool has often been greater than the value it adds to a property. However, recent discussions with real estate agents, including Stuart Evans in a previous podcast episode, suggest that this gap is narrowing. This shift may be attributed to the pandemic, which saw a renewed focus on home improvement and a desire for features that enhance enjoyment of living spaces.
While the cost of a pool will likely still exceed the immediate value it adds, the difference is less pronounced than before. It’s worth noting that this cost-versus-value relationship can vary significantly across Australia. In Queensland, where pools are almost expected, the cost is often reflected in the property’s value. However, in Melbourne, there may still be a value-gap.
Granny flats and studios
These are typically more appealing to homeowners than investors, and the motivations for them vary. Often, it’s because a family member might be considering moving out, such as a young adult, and parents might want to keep them close by. Or it could be to accommodate elderly parents who need support.
Sometimes, it’s easier to construct a separate structure in the backyard than to extend the existing house, especially when considering the existing floor plan and how a new addition might affect the flow of the home. Adding a separate room out back might be a better option.
For some people, this separation is really important. Whether it’s a granny flat for family members or a pool room for entertaining, having a separate space can provide greater privacy and independence.
However, one of the key considerations is space. In a typical middle-ring suburb of Melbourne, with an average block size of around 700 square metres, a granny flat will take up a significant portion of the backyard. While it might be highly sought after by some buyers, it could also limit the property’s marketability, as many families prioritise having a backyard and outdoor space.
As opposed to a dedicated granny flat, a studio or a single room, perhaps with a bathroom, may offer greater versatility. It can serve as a rumpus room for children, a pool room for entertaining, or a work-from-home space. This multi-functional aspect can appeal to a wider range of buyers.
Given that, a granny flat often serves a specific purpose and might not add value proportionate to its cost. A studio, on the other hand – if it’s done well, incorporated into the backyard nicely, and is architecturally suited – can certainly add value proportionate to its cost, and perhaps even more.
Garages
Personally, I think this addition has the greatest potential to add value relative to its cost. Of course, it depends on the type of home and its location. But if you can add a garage or carport, or even just create a dedicated parking space where there wasn’t one before, you’re likely to significantly increase your property’s value, especially in the right location.
Some suburbs will see a greater premium for parking than others. Take, for example, Middle Park or Albert Park in Melbourne. These areas have many single-fronted cottages and terrace homes, and parking is highly sought after. If you can create a parking space where there was none – perhaps off a rear laneway, and add a carport or even a garage – you’ll likely add significant value to the property.
In middle-ring suburbs, where off-street parking is more common, most properties will have a driveway. But if you can add covered parking, in the form of a carport or garage, you can start to see real value added.
While carports offer a more budget-friendly option for covered parking, garages provide greater security and protection from the elements. In locations where secure parking is highly valued, investing in a garage can deliver a strong return on investment.
Outdoor entertaining spaces
The idea of adding features like a pergola or an alfresco-style entertaining area becomes particularly enticing as we move into warmer months. With people eager to spend time outdoors, creating a well-proportioned space can significantly increase livability.
There are various ways to approach this. There’s the extravagant outdoor kitchens that are almost like additional living spaces. When done to a high standard, these areas can feel like adding another living zone to your property. These setups go beyond just a barbecue; they include bar fridges, smokers, pizza ovens, TVs, couches, sinks, and even dishwashers.
While this type of luxurious outdoor space usually appeals more to owner-occupiers than investors, simpler options can also add significant value. For instance, if you have a terrace house with a backyard that’s not particularly user-friendly, installing a pergola with a grape vine growing upon it or adding some shade can create an inviting outdoor space without the high cost.
Take home message
It’s important to note, while the cost of some improvements might be a bit higher than the immediate value in the shorter-term, greater value is typically unlocked over the medium to long term. Ongoing high construction only serves to compound the return on investment.
But ultimately, it’s important to remember that each property is unique. What works for one might not work for another. A garage might be a fantastic investment for one property, while a granny flat might better suit the needs of another.
Carefully consider your motivations and long-term goals. What is the purpose of the addition? Does it meet your needs and requirements? With careful thought, you’ll ensure informed decisions that enhance your property and lifestyle for years to come.
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