The Three Potential Value Adds That Suggest You’re Buying a Property for Under Market Value
As an investor, you aim to purchase properties so you can make a profit. But what if the market goes against you? That’s where having value adds becomes important.
During any given period of time, the state of the property market will fluctuate. Increased competition, changes in prices, and issues related to supply and demand all have an effect on a property or home value.
Your property investment strategy has to account for this. Your goal is to buy under market value so you’re protected if prices start to fall.
In a previous article, we spoke about using the Property Clock for buying at a discount.
In this article, we take a look at value adds and how they fit into your real estate investment.
Why Look for Potential Value Adds?
It’s all there in the name. A value add will increase the eventual sale price of your property. This helps you – whether you’re selling at the market’s peak or trying to protect your investment.
In the latter case, a value add will make your property more appealing to potential buyers. It may convince them to offer more than current market value for that particular type of property.
But the challenge is how to maximise house value?
It all comes down to renovating to improve true value homes.
If you’re able to improve a property through appropriate renovations, you’ll find that its value increases. For example, renovating a cellar can lead to a 30% increase over the purchase price.
These value adds also accelerate capital growth when the market’s strong.
Imagine you have two properties, each of which has three bedrooms. They are the same property types and there’s little to distinguish between them from the outside.
However, one of the properties has an ancient kitchen, a disused loft, and a boring bathroom. The other offers the latest mod-cons and makes full use of the available space.
Which do you think will catch the eye of those who want to buy a property?
That’s what value adds bring to the table when it comes to your property investment strategy. Your goal is to find a property with the potential for value adds.
Here are three things to look for…
Value Add #1 – It Offers Potential for Subdivision
One of the most powerful value adds is the ability to take one property and turn it into two or more residences. When done well, this tactic increases what the property is worth. You are adding value to a house.
Max Fragar, who’s the Principal at Fragar Planning and Development, spoke about this during an interview with Domain:
“Dual occupancies are the holy grail of residential investment. Our experience is that on average, a completed dual occupancy approval increases the value of a property by up to 40 per cent.”
He went on to say that he’s had some clients who doubled a property’s market value through subdivision.
This strategy makes a large property a favourable purchase. If you’re able to divide it into several properties, you stand to benefit once you’ve sold them all.
Value Add #2 – Space for a New Room
Perhaps the property isn’t large enough to subdivide.
So what adds value to your house? Will adding one part work? It may still have enough space for you to create a new room.
In an article for Forbes, real estate writer Julia Dellitt discusses Meghan Chomut’s advice. Megan is a Certified Financial Planner who offers support to family owners.
According to Julia, Megan says:
“…Adding another decent-sized bedroom alone can broaden your buyer list if you sell, since many people will always consider more bedrooms than their family requires, but rarely consider looking at properties with less.”
This is also where the cellar and loft conversions mentioned earlier can come in. Most homeowners use these for storage. If you’re able to convert one of these areas, you’ve found a value add that usually makes the property a good investment.
In some cases, you may even be able to convert the cellar into a flat. This bleeds over into the subdivision tip and may allow you to generate a second passive income from the property.
Value Add #3 – The Lawn
The lawn may indicate that you can get the property under market value. Though it may not seem like an obvious improvement, a little landscaping can add value to the property.
That’s what real estate agents Raine & Horne discovered when they conducted a survey of agents. According to Better Homes and Gardens:
“Of the real estate agents surveyed, 40 per cent of agents believe a nicely presented lawn can boost your home’s value by 20 per cent, while 23.3 per cent of agents surveyed believed it could bolster your home’s value by 30 per cent.”
Think of the lawn as an extension of the property. If it’s maintained well and offers space, you have the potential of adding value to property. You also cannot discount the importance of kerb appeal when it comes to the front lawn.
The first impression counts when you’re trying to sell a property. A well-maintained lawn creates a good impression that carries over to the rest of the viewing.
Hunt for Value Adds
These are just three of the potential value adds to look for if you want to get a property for less than its true market value. In the case of the lawn, a few hours spent on maintenance can boost the value by up to 20%.
There are plenty more besides to add to the real home value. For example, updating the kitchen and bathroom with a more modern look adds value. So too does replacing carpets, repainting walls, and all of the other cosmetic touches that buyers notice during viewings.
Of course, value adds are just one part of the equation when you’re trying to buy under market value. There are other aspects to consider, such as the state of the local market and the seller’s motivations.
DG Institute covers all of this and much more in the Real Estate Rescue Program.
If you’re interested in learning more about property investment and profiting from distressed property, join the upcoming Real Estate Rescue webinar with Dominique Grubisa.
Lawyer, Asset Protection Specialist and Property Educator
Dominique Grubisa is a practising legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at firstname.lastname@example.org
This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.