How to renovate to build instant equity

May 1, 2021

A strategy to build instant equity is through smart renovations.
Invest in renovations that will add value to the home, rather than simply adding appeal.
Keep renovation costs to around 10% of your property’s value and don’t over capitalise.

Finding and buying properties with potential equity doesn’t come easily as buyers and investors must be prepared to research and spend hours looking for the right properties.

Once you have the right property or an existing property with equity building potential, investing in renovations that will add value to the home, rather than simply adding appeal can help you add instant equity and increase the value of your property.

Building equity through renovations

If you’re looking to renovate and improve an investment property, make changes to the property that will increase potential rent income and appeal to future tenants. The benefit of renovating to build equity in investment properties is depreciation allowances, spending $30,000 wisely can increase the value of the property by $50,000 – 60,000.

No matter the property type you’re renovating to build equity, the key to success is being smart. Focus on changes to the property that increase the properties overall value rather than appeal.

If you look to spend thousands on a coat of paint or some curtains on the inside, think how that money could better be spent to create equity to invest or increase profit on the sale.

Look to budget around 10% of the properties value on creating equity and be mindful of overspending on renovations where the potential profit on a sale could be lost.

Other ways to build equity

Other than using renovations to build equity, there are different avenues you can take if renovations aren’t ideal for your current situation. You can take the time to pay down your mortgage, which can be less effective as it takes time, patient and hard work to put the money aside to put it on your mortgage.

Another way to build equity is to wait for capital or ‘organic’ growth to occur. This can be the cheapest and easiest way to grow equity without spending money or time on renovations or paying down a mortgage, however, this approach also takes time and patience.

If you’re ready to take a big leap with suitable property, subdividing or developing could be the right equity building strategy without waiting years for market growth.

The value of spitting an existing block into two new blocks along may be worth more than the original block depending on your location. A simple development approach might involve knocking down an old house and building a duplex or townhouse. With this approach, be mindful of the funds, time and knowledge required to ensure that the equity can be built into the development.

Next steps

Building equity can come in many forms, and doing the right due-diligence can help you find the right path to take whether it be through renovating an existing property or building equity through new development.

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