Three
tips to increase rental returns in older apartment blocks
By C McEvoy
Wednesday, 25 September 2013
Wednesday, 25 September 2013
As
investors, sometimes the most efficient unit buying strategies for some locations
is to consider or favor older developments. In highly renter-desirable
locations purchasing older apartment stock usually come with a few advantages,
such as:
- A
more cost-efficient buy-in rate than new stock;
-
Locations that newly built blocks just cannot compete with (such as
unobstructed ocean views, or the quietest streets in a suburb otherwise full of
noisy, congested arterial roads);
-
Oftentimes larger apartment square meter space;
-
Opportunity for renovation and modernization to both add capital value and also
increase rental return.
This
is not to say that buying new or near-new stock does not have its benefits. In
many instances, you will be better off in your selected suburb or street to
purchase newer stock. Depreciation schedules look much more tax advantageous,
unit layouts are usually more befitting a 21st century lifestyle and this is
attractive to would-be tenants, plus features and facilities are usually far
superior than older blocks.
However,
I’ll focus entirely on older blocks and ways to add value to them. Some of the
ideas I have successfully implemented myself, whilst others I’ve observed peers
and colleagues who have had positive rental return knock-on effects from such
renovations. Some elements are things you can do within your own unit, whilst
others are things that can add value to the entire block, but as such require
voting-majority agreement in strata committee sessions.
Adding secure entrance doors to the block
This
is a project I am actually in the middle of, with one of my investment
properties. Older blocks, say those of circa 1950′s through to 1990′s, are
almost always your usual apartment block affair; being typically a three-floor
‘walk-up’ brick block.
Most
blocks will have anywhere from four to t12 units, across two or three floors.
These kinds of blocks would have originally been fitted with a basic wooden
entrance door to the building. Some buildings do not even have a lock feature
on these doors, and some in especially poor states disrepair do not even have a
door at all!
Tenants
value security when it comes to apartments and units, especially in inner and
middle ring suburb locations in cities. Adding a modern, intercom-connected,
secure aluminium-and-glass door system will add peace of mind to tenants living
in that block. It will also add value to every unit in the block for this
reason.
The
challenge with implementing this of course is that being a shared problem; it
is a strata solution. This means that there needs to either be enough money in
the sinking fund to pay for it, or a special levy will need to be raised to pay
for it. In either scenario, the strata committee and members must vote on such
an addition to the building and a majority must indicate their preference to
have the project done.
To
give you an idea of scope, the property I referred to at the moment has been
back-and-forthing the security door installation issue for over twelve months.
First, the vote had to occur and be won. That took time. Next, multiple
contractor quotes were required for submission, again taking more time. The
strata committee had to then agree a candidate contractor. Finally, the
contractor is still yet to commit to starting the work. Due to this issue
affecting all tenants, we also must advise tenants well in advance of the works
to be carried out.
Secure letterbox installation
This
is a less labor-intensive renovation than a security door, but still it
requires the agreement and funds allocation of the voting strata committee.
Just like their personal security, tenants are increasingly valuing more secure
letterboxes in older building.
Why?
Because the fastest growing ‘category’ of crime in the world is not murder,
traditional kidnapping, armed robbery and so on. Instead, it is a far more
profitable and lower risk crime: identity theft and digital theft of bank
accounts, data, and personal information.
And it
is happening all over the world. Russian organized crime and mafia families for
instance, are transitioning from being leg-breaking, murderous, threatening
gangsters to digital, thieving, and threatening gangsters. Identity theft via
the hacking of social networking data to illicit sensitive personal banking and
financial data, is becoming more and more common.
So is
the instance of letterbox-raiding. This is because the letters you get from
banking and financial institutions contain the ‘missing link’ information that,
when combined with hacked digital data, adds up to be an almost-complete
profile of a victim. From here, criminals are able to connect the data types
and contact institutions, enabling them to steal money and other sensitive data
from the victim.
Older
blocks have decaying and easily breakable letterboxes where data thieves can
access your information, so by having a modern secure letterbox be built, it
gives renters a further comforting peace of mind. Usually these are built
directly on top of an old brick wall style letterbox. The old letterbox holes
then get a metal sheet covering them, which usually spells out the block number
and building name too. These look quite nice and add a modern touch to older
units; making them easier to see from the street and identify, when visitors
are trying to find the place.
Maximizing common property space to fit more
parking
This
is a much less common strategy but one worth mentioning. Take for example an
older 1970′s, three-floor walk up block. Let’s say there are 12 units on it,
with uncovered parking lines that can fit eight cars in it.
Usually
in these instances, the eight parking spaces are not ‘on-title’ belonging to
any unit. That effectively means that the 12 occupants must randomly share the
eight spaces. It also means that when selling a unit in this block, the owner
cannot sell the unit stating that it comes with its own parking space. In some
suburbs in inner-ring areas of cities in Australia, a unit with dedicated
parking can be as rare as hen’s teeth.
Typical
in these older blocks too, are large clothes line areas (the old ones that
screech when the wind blows them around in circles). If you are able to get the
agreement of the strata committee to fund the investment; some blocks are
converting the clothes line areas into extra parking spaces – enough to make a
spot for each unit. The clothes lines are then replaced down the side of the
building with modern space saving wall-mounted fold up clothes lines. The
lawyers then draw up a new strata plan that allocates on title one car space
per unit. This is the most expensive part. The valuers are then brought in at
the end to assess each unit value now that it features a dedicated on-title car
parking space.
This
strategy will not be right for many blocks. In fact, in some suburbs, the costs
involved above to add the improvement, may not be returned in terms of the
value-add that on-title car parking spaces, per-unit, will give. However, the
value-add will occur both in rental return increase of some degree, and capital
growth over all of every unit value.
Eight Quirky Design
Features That Interest Urban Renters Are Interested In
Along
with an increasingly urbanizing Australian population comes a ‘race for space’
of sorts in our major capital cities. Despite the seemingly endless supply of
land in Australia; like many geographically large nations around the world such
as China, Brazil, and Russia; our citizens are increasingly valuing the
convenience of an urban lifestyle at the sacrifice of land and space. However
there are knock-on effects for would-be renters that innovative investors are
capitalizing on; to ensure their properties can attract demand and retain the
best possible rental returns.
The
best examples of this can be found in smaller properties; so inner and middle
ring suburbs where units, attached houses with small yards, and small
freestanding terraces are the most common property types. Today I’ll take you
through eight innovative changes or improvements that investors are updating
their properties with, in order to attract the best rental returns. These
trends cover off things like space maximization and the growing urban desire to
bring the rural or country ‘creature comforts’ into urban spaces. The key thing
is that these trends are happening in smaller, urban properties where space
maximization and lifestyle convenience are the things renters are seeking.
Investors ought to take note; as some of these can be quite cost-efficient to
implement, and could see the rental returns increase as a result.
1) Veggie ‘feature’ Gardens: These are popping up in tiny terrace
back (and front!) yards in suburbs in inner-western Sydney and south-east Melbourne.
Basically these are a small dedicated veggie patches – perhaps just 1M x 2M –
planted in a front or back garden where space is limited, as a feature garden.
The gardens achieve three core design functions;
-
Creating visually pleasant way focal point for small gardens;
-
Saving much-needed space for entertaining – also high priority for inner urban
renters;
-
Addresses growing urban renter demand for ‘grow your own’ produce
2) Elevated Deck With Under Storage: According to US site Houseplans.com,
trending well with ‘tiny’ cottage style homes – so those similar to the
workman’s terraces/cottages in Australia – are elevated back yard entertaining
decks that include dedicated, secure, and weather-resistant storage ‘bins’
underneath them. These bins, or drawers, literally roll out from underneath the
decking and free up space in otherwise cramped small properties.
3) Kitchen/Study Combos: Weaving in to apartment design in
several upcoming Australian developments are kitchens that can double as a
study space when needed. These work by allowing an entire cabinet wall (usually
a floor-to-ceiling pantry wall), to have a hinge half way down so that the top
half of the wall folds over 90 degrees. This creates an office bench when
needed and is a good feature of micro-apartment design (units of under 45sqm),
where space is particularly lacking.
4) Wall Dining Storage: Similar to the convertible kitchen
cupboard/study desk above; some micro apartment designs are including TV unit
wall storage that actually store a dining table and four dining chairs on
racks, to save space when not needed.
5) Filtered Water Taps: By no means are these a new trend;
however what is trending well are older-style apartments who are installing
water filter taps to existing kitchens. Water filter taps make older apartments
more desirable, particularly in inner-ring suburbs. These are easy to have
installed when in between tenant occupancies, and are a capital cost that can
be added to your depreciation report within the financial year they are
installed.
6) Pre-fabricated Building Design: Melbourne’s International Flower &
Garden Show was abuzz with word of this design material. For investors the
value of using pre-fabricated wooden panelling in any small front or back yard
renovation is cost-efficiency. Some investors use it to create ‘backyard rooms’
which are effectively an oversize cubby-house for adults. This can add a
covered entertaining space to small urban courtyards that previously had no
entertaining function, for a reduced cost. Additionally these add as a striking
design focal point in the yard, in turn attracting tenants and maximizing
rental return.
7) ‘Wee Tree’ Wall Gardens. Funny name, handy cost-efficient addition.
The Wee Tree wall trend started out in Chicago but is appearing in Australia
too. When there is no courtyard or balcony space for a ground-planted garden,
but you want to cost-efficiently add greenery and a dynamic focal point for the
space; these wooden-panel walls can built and installed cheaply. They work well
to either hide an ugly wall, or to create a garden where there was no space in
the ground previously to do so. The wall slats have shrubs planted across all
the gaps, adding a sense of nature to otherwise cramp and industrial-feeling
urban yards. Again, these add perceived value, for minimum cost, working to
attract premium rental value for a property.
8) Clever Use of Mirrors. Again, nothing new with mirrors being
used in small spaces to add the perception of more space. But it is the clever
use of them in renovations that is innovative. Mirrored bottom-shoe-drawers
inside wardrobes that angle so shoes are visible when the drawer is only
slightly open, are trending well for urban spaces. These save people from
sifting through shoe drawers when they are busy whilst also saving storage
space. Wall-to-floor mirrors in living spaces duration renovations are also an
age-old maneouvre to convey a more spacious living area.
Best regards
Linda
J. Debello LREA & Carlos Debello
Phone: (07) 3263
6085 Fax: (07) 3263 5985
Mob: 0400 833 800 Mob2: 0409 995 578
LJGillandRealEstatePtyLtd
Here is the website
specifically set up for sellers.
Best
Regards
Linda
Debello
Removing the hassle from Sales and
Rentals.
L J
Gilland Real Estate PTY LTD
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