In this guide 9 sections
- How do you add value to an investment property?
- What do we check before buying a renovation play?
- Which renovations add value to a rental?
- Can you turn a living room into a bedroom?
- Do you need a building permit to renovate?
- How are renovations treated for tax?
- Can you raise the rent after renovating?
- What rental standards must the work meet?
- Example: Kings Meadows, Tasmania
You add value by buying a property with room to improve, then doing work that costs less than the value and rent it adds. Here is how we find a renovation play, which work pays, the rules for turning a room into a bedroom, and how renovations are treated for tax.
- The value is made in the price you pay and the property you choose.
- Never renovate past the price ceiling.
- A legal bedroom needs 2.4 m ceilings, light and ventilation.
- Initial repairs are not an immediate tax deduction.
How do you add value to an investment property?
You add value by buying a property with room to improve, then doing work that costs less than the value and rent it adds. The work can be as simple as repairs and paint, or as big as changing the floor plan.
The money is mostly made before you buy: in the price you pay and the property you choose. That is why we look for renovation upside during due diligence on every property we assess.
What do we check before buying a renovation play?
- 1Check the price ceiling
The price ceiling is the most buyers pay for that kind of home in the street or suburb, based on recent sales of renovated homes. Spending past it is called over capitalising: the work costs more than it adds.
- 2Buy below the median
We aim to buy below the suburb's median house price, so the value from the work sits on top of a good buy.
- 3Find work that adds value
Repairs, maintenance or a better floor plan. We cost the work before buying and only recommend it when it should add more value than it costs.
- 4Lift the rent
Work that adds a bedroom or lifts presentation can lift the weekly rent, which lowers the holding cost.
Which renovations add value to a rental?
Roof repairs, fixing leaks, rot and damp. Buyers, tenants and valuers notice what is broken first.
Exterior paint, gardens and lighting. Low cost work that changes how the home is seen from the street.
New benchtops, tapware and fittings rather than a full rebuild.
Adding a bedroom, opening up a living area, or adding a second toilet or bathroom.
Keep finishes durable and neutral. A rental needs to suit the widest range of tenants, not one owner's taste.
Can you turn a living room into a bedroom?
Often yes, and it can be one of the best value changes for a rental. A 3 bedroom house with two living rooms can become a 4 bedroom house, which suits more families and tenants and can lift both the value and the rent.
But a room is only a bedroom if it meets the building rules. Under the National Construction Code a habitable room such as a bedroom needs:
- A ceiling height of at least 2.4 m.
- Windows with a light transmitting area of at least 10% of the floor area.
- Openable windows or doors giving ventilation of at least 5% of the floor area.
- Working smoke alarms near the bedrooms, mains powered and interconnected where there is more than one.
Do you need a building permit to renovate?
Rules differ by council and by property. A planning permit, for example under a heritage overlay, is separate from a building permit.
How are renovations treated for tax?
Fixing damage or wear that happened while the property was rented is generally deductible in the same year.
Fixing defects that existed when you bought is not immediately deductible. For the building it is generally claimed as capital works over 40 years.
Work that makes the property better or changes its character, such as a new kitchen, is capital works or depreciation, not an immediate deduction.
Renovating or extending an established home is not expected to make it a new build under the tax changes from 1 July 2027. Ask a registered tax agent before you start.
ATO: repairs and maintenance →
Can you raise the rent after renovating?
Not straight away for a sitting tenant. In Victoria rent can generally only rise once every 12 months with 90 days notice. In NSW it is once every 12 months with 60 days notice. In Queensland the once a year limit applies to the property, not the tenancy.
So the rent lift usually comes when the property is next leased, or at the next lawful increase. The best time to renovate is often between tenants, or straight after you buy.
What rental standards must the work meet?
In Victoria a rental must meet the minimum standards when it is advertised, including a fixed heater in the main living area, window coverings, safe electrics and no mould or damp. New energy efficiency standards start from 1 March 2027, including ceiling insulation and efficient shower heads, so it makes sense to include them in any renovation now.
Example: Kings Meadows, Tasmania
We bought a 3 bedroom house in Kings Meadows for a client for $521,000. About $12,000 of roof repairs and exterior paint, and local agents appraised it at $610,000 to $620,000 seven months later.
- National Construction Code 2022: room heights
- National Construction Code 2022: light
- National Construction Code 2022: smoke alarms
- Building and Plumbing Commission Victoria: when is a building permit required
- ATO: repair and maintenance expenses
- ATO: capital expenses
- ATO: reforming negative gearing and capital gains tax
- Consumer Affairs Victoria: rent increases
- NSW Government: when and how rent can be increased
- Queensland Government: better rent protections
- Consumer Affairs Victoria: new energy efficiency standards for rentals
General information only. It does not take your objectives, financial situation or needs into account and is not financial, tax, credit or legal advice. Citadel Agency is a licensed buyers agency (licence 092247L) and does not hold an Australian Financial Services Licence.