Sell or Rent
The first thing to consider, is that once the property is sold, it is gone forever. In buying a property, perhaps you should consider what you should sacrifice. Most properties are paid off in 30 years ( the mortgage term) and investment properties sooner .
A long time, but to
have one, two, three properties paid off makes a difference to your lifestyle
then. And to your family!
My only regrets in
real estate investments is in selling property. Never again!
A Japanese billionaire
would build a tree house and live in that before re-mortgaging and moving onto
the next property. Extreme? Depends on
what you want.
Friends I have known
would move into the garage, before moving out. 10 years ago, they controlled 10
properties at half today's values.
We all have our
tolerance level, but a bit of no pain no gain can be beneficial.
So, how much
renovation should you do? Renovation is
only for two purpose – to increase the capital gains or to increase the income
( increased income normally creates
increase value- it depends on the
presentation).
My advice is to think
like a corporate. Large business considers a 15 % return on capital employed,
reasonable. Those in better positions
can get 30 to 50% . Large companies
owning hotels can get a 30% return on renovations. This needs to be after tax, as no one wants
to lose half.
So, what does this
mean?
Cash is king so is
income. So, you renovate to increase
cash income. Cash flow as they call it. Renovating for capital
gains can be a tricky business and involves timing so 15 % is your benchmark. Anything above is cream and should be done
immediately.
Listen to your
tenants. We always ask your tenants, what
would they like to see in your property?
A heat lamp in the bathroom for winter?
Cost $200, tenant is happy to pay $5 extra? - return over 100% pa.
Properties are always
going up in quality - yours should
too. If you get 15% return from the
improvement, the bank or your partner is happy to fund that.
Some properties just
keep getting better and better, using this compounding approach. Selling a
property to buy two is worthwhile.
Finally, why do all
this? Because, an extra 1% compounding
gain can have a massive difference over 30 years. Question Mark? - when does the 30 years start
– when you are 20, 30, 50, 70?