Jarrod McCabe & Jordan Telfer
While Melbourne’s apartment market hasn’t seen the same levels of capital growth compared to the housing market in recent years, we’ve still seen some strong results for well appointed apartments in the right locations.
Maximising an apartment’s potential through renovations and upgrades can significantly increase the amount prospective buyers and renters will pay for the property, helping to create long term wealth into the future.
This is the third and final installment in our three part series, providing expert advice, to help you successfully invest in the rental apartment market.
First, we explored the current state of the market, then analysed the difference between under capitalised versus over capitalised apartment properties, and now we’re moving on to explain how best to add value to these properties.
Apartment upkeep and upgrades can be divided up into the externals and internals of your block.
Outside the apartment
Unlike a standalone house, owners don’t have complete control over the external presentation, but must work within the confines of the owners corporation.
It’s important to communicate with other owners in the block to ensure everyone is on the same page, and feels they derive some benefits from any changes.
An area that is often overlooked, is the communal garden surrounds, which are sometimes left unmaintained and shabby. It’s easy to let happen, especially over the drier summer months.
However, it’s a vital first impression for anyone entering the property – whether that be potential renters or buyers.
First impressions count. Ensure the garden is in a healthy state, with visually appealing and well maintained lawns, pruned trees, and well cultivated garden beds. This creates an inviting and uplifting feeling for prospects as they walk through the front gate.
Another point of focus should be the external building itself.
Does the block look cared for? Or are the window frames and balconies starting to look tatty? That could be a red flag to potential buyers. As they may need to be replaced at some point, which reduces marketability.
Do the security doors work and lock property? Too often they don’t. But this can be a big issue, especially for ground floor apartments.
When potential buyers or renters walk through the building’s entrance, is the floor nice and clean or scuffed and dirty? Are the carpets on the stairs, frayed or stained?
If not, it doesn’t create the best impression, as they make their way through the block’s common areas towards your apartment’s front door.
You can spend all the time you want improving your own apartment, but if that first impression isn’t right, many potential buyers and renters can simply turn on their toes and walk away.
These sorts of works need to be carried out by the owners corporation, so it’s important to have some level of involvement within it.
If you have the time and appetite for it, it’s a good idea to join the owners corporation committee, but at an absolute minimum, you need to attend your owners corporation meetings.
The annual general meeting happens once a year, and often only takes an hour or two, but it can change the total nature of your property.
If quorum isn’t established, the one or two members that do turn up can have an awful lot of influence and power over the decisions in regards to the overall block.
A good owners corporation is proactive and plans ahead, seeking to include all members’ circumstances into future plans.
Some heavy cost items are unavoidable, such as 50 year old window frames or roofs that may need replacing.
However, an ongoing maintenance levy can be enacted that spreads the cost out over a longer period ahead, giving people with more limited means, the capacity to meet the financial obligations.
On the other hand, make sure any levies are contributing towards a direct piece of work or upkeep within the block or building, as opposed to an ongoing levy that is simply held for future and potential issues that may arise.
Contributing thousands of dollars over a period of years without having it spent on the property before its time to sell can be frustrating, as the contributions can’t be extracted when you sell, and stay with the owners corporation.
Inside the apartment
Once we move inside the apartment, the owner has sole control over the works and upgrades, without interference from others.
When assessing the livability and appeal of your apartment, it’s important to understand the expectations of tenants and buyers in your particular market.
This can take a number of approaches.
Are you undertaking works with the expectation of holding on to the property for another 10 to 15 years? Or is the timeline closer to one to two years?
If it’s the latter then you probably should not allocate as significant resources to the project, and should be far more judicious about where and how you spend your money.
Whereas if you’re planning to hold it for 10 to 15 years, it’s worth carrying out the work to a long term and higher standard, so replacements and upgrades won’t be needed before it comes time to sell.
Be aware that buyer and renter expectations have certainly increased in recent years, especially under changes to the state’s residential tenancies act last year.
Living rooms are now required to have heating. But if you intend to attract quality buyers and renters, it’s probably wise to take the opportunity to install a split system heater-air conditioner. This will ensure the property stays up to date far longer in the years to come.
Another area that should be considered is the laundry. Many older apartments built in the 1930s and 1940s featured a communal laundry.
Expectations have long since changed, so bringing laundry facilities inside the apartment would definitely be more appealing to the majority of renters and buyers. This could be done by removing the bath in place of a washing machine. While baths are nice to have, they are rarely considered an essential within apartments.
An item that is increasingly being considered essential is a dishwasher, even in one bedroom apartments.
So when the time comes to update and renovate the kitchen, ensure there’s plenty of nice bench space and cupboards, as well as room for a dishwasher if possible.
More superficial improvements, such as a fresh coat of paint, new carpets and new furnishings are an obvious, but relatively cheap and easy way to transform an apartment aesthetically – bringing it in line with modern tastes and trends. Any superficial improvements to balconies are also worth the effort.
Adding value to your apartment can make a significant difference between the eventual sale price of the property, as well as the rental yields and occupancy rates.
However, as we’ve discussed, all improvements aren’t considered equal, so ensure you spend your time and money judiciously now, to ensure you optimise your returns in the years to come.