Adding Value, Not Risk

By Kristy Lee, Hamptons Property Services

When considering what work is required to an investment property, whether this is done prior to purchasing it as part of the astute investor’s feasibility, or when looking to improve the value of an existing asset, it is easy to get carried away with spending money on capital items without considering risk.

In the context of improvements to investment properties, risk is inherent in the capital expenditure and the investor must ask themselves:

1. Will the works result in a proportionately larger increase in value than the cost?

2. Will the works require approval from the local council, or are there other avenues to legally carry out the works?

3. If approval from the council is required, what is the likelihood that the proposed works will be approved and how long will this process take?

Each of the above examples of inherent risk with investment property improvements can be identified by specialists in these fields.

For example, if you were considering whether or not to extend an existing dwelling in order to provide a small balcony off a master bedroom or the like, in order to increase the appeal of a property and its value, an understanding of how much this will cost, as well as how much value this will add to the property is essential in making a decision to undertake the works. This is considered to be a more common-place assessment of the risks by property investors.

However, what is less common-place is early consideration of the approvals required for such works and the associated risks and costs in obtaining the necessary approvals. Without these, works are illegal and will end up being more costly and detrimental to the value of property.

It is essential that early advice is sought from a town planner who has experience with the relevant local council in order to determine the extent of approvals required and the likelihood that the Council will approve the proposed works.

In addition, a town planner should be able to outline the anticipated costs of obtaining an approval and recommend any additional consultants which may be required by the Council. This early advice should be relied upon in making a decision to commit capital expenditure to investment property improvements.

Ultimately, early advice will reduce unexpected delays caused by ill-prepared development applications and a lack of experience in dealing with council expectations and attitudes. In doing so, you can ensure that your decision to make improvements to the property will add real value and reduce risk.

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