Investors are property problem solvers. They make accommodation available to solve tenant’s problem of having somewhere to live. As an investor you need to address problems to make your investment yield a better return and to develop ways to create equity.

Lets say you buy a block of 5 units like the ones in the picture below.

It is listed for $700,000 for all 5 units and when fully rented it would return $900 per week in rent. For those looking for return on investment that is a 6.69% return.

Now let’s solve the problems I found when visiting the property earlier this morning and work out the likely equity growth.

1. Its appearance could do with some attention. Landscaping, painting and some rendering will be required.
2. New floor coverings will be required to bring the insides up to a user friendly standard.
3. Updating the taps, handles and fittings to liven up the bathrooms, laundry and kitchens in each unit.
4. Re-plumbing the pipes that stick out at both ends of the units.
5. Looking at re-roofing as a possibility.

Now these are all things you can do yourself or sub-contract out to professionals or handy people.

I estimate that for $20,000 you can get away with most of that list, doing the work yourself. I also only spend money on real estate if I get a return of 4:1. That being said the likely valuation of a block of units would be close to $800,000 after you have done this type of renovation.

Its not a bad return on investment when you consider that for the outlay of $20,000 you have a made a equity increase of $100,000. Also the next rental evaluation will usually increase by the amount the property is worth. So in this case it would go up by 14% as this was the increase in the value after the renovation. So the likely rental now has increased to $1026 per week

So what does that mean in a return on investment?

At the start we had a 6.69% ROI. Now we have a 7.62% ROI. All for $20,000. The time frame of this project would be a month to six weeks. As you can see by the figures this is much more rewarding than going to work everyday.

So what do you do next?

Refinance this property and use the equity built up to do more and more unit blocks, houses or units. The only thing stopping you is the ability to manage every part of the project.

How many of these could you do per year?

The answer is limited by resources, but even if you just did one property per year.You would have made more money than working in that timeframe. It sure beats going to work 40 hours a week. Make equity and enjoy spending it!

Don Christie

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