How to "manufacture" capital growth with property renovations

How to "manufacture" capital growth with property renovations

If you don't include renovating as part of your property investment strategy then you're probably not maximising your potential returns. You can use it to fast track the growth of your portfolio, create an additional income stream, or a combination of the two.

Adding value to an investment property can be relatively simple if done the right way. You add value by taking a structurally sound but run down property and smarten it up, making it more desirable, and thus more valuable, to renters and buyers.

You can give it a coat of paint. Or tidy up the garden. Or replace all the doorknobs, build a barbecue, get the carpet replaced or polish the floorboards. There are literally dozens of improvements, big and small, that you can do to increase the capital value. The trick is to add more value than the actual cost of the improvements.

By doing well thought-out, cost effective cosmetic renovations you can achieve what I call “manufacturing capital value”. Rather than just sitting back and waiting for the market to deliver capital growth over time, you accelerate the process by "manufacturing" capital growth by renovating. This allows you to build wealth faster and without relying solely on market increases.

As an added bonus, renovating can also increase your cashflow via the higher rent you can achieve for the renovated property. So you have two ways to profit: capital gains and increased cashflow.

In most cases (provided you’re clever about it) the increased rental income you generate will cover the costs of financing the renovation. So effectively, you get the capital gain and increase your cashflow.

In summary, renovating for profit is a solid approach for building equity which is less reliant on outside factors which are beyond your control. I firmly believe that building wealth through renovating residential property is a skill that can be learnt by just about anyone.

Categories: Renovations