--- title: "Five Renovations That Lose Money. I Have Watched Investors Make Every One." description: "Five renovation mistakes that destroy ROI on investment properties. Swimming pools, high-end kitchens, structural changes, landscaping excess, and premium fixtures in rental-grade suburbs." author: Yan Zhu date: 2022-12-22 category: Guides url: https://premiumrea.com.au/blog/renovation-mistakes-overcapitalising-five-traps-investors tags: ["renovation", "overcapitalising", "ROI", "investment property", "renovation mistakes", "rental yield"] --- # Five Renovations That Lose Money. I Have Watched Investors Make Every One. *By Yan Zhu, Co-Founder & Chief Data Officer at PremiumRea — 2022-12-22* > Renovation is supposed to create value. That is the whole point. But I keep seeing investors pour money into upgrades that add nothing to the valuation and nothing to the rent. They end up with a beautiful property and a terrible investment. Renovation is supposed to create value. That is the whole point. You spend $30,000, the property value goes up by $60,000, the rent increases by $150 a week, and everyone is happy. But I keep seeing investors pour money into upgrades that add nothing to the valuation and nothing to the rent. They end up with a beautiful property and a terrible investment. The gap between those two things is where overcapitalisation lives. I have watched five specific renovation mistakes repeat themselves across dozens of client properties that came to us after they had already been renovated by someone else. Every one of them looked good on Instagram. None of them looked good on a spreadsheet. ## Trap 1: swimming pools on investment properties A swimming pool costs $40,000 to $80,000 to install. Annual maintenance runs $1,500 to $3,000. Council compliance and fencing add $5,000 to $8,000 upfront. The rent premium for a pool: $80 to $120 per week in the right suburb. That sounds decent until you do the maths. At $100 per week premium, a pool generates $5,200 per year. On a $60,000 install cost, that is an 8.7 per cent return. Not bad, right? Except the pool also increases your insurance premium, creates a liability risk, limits your tenant pool to families willing to accept pool safety obligations, and adds a maintenance burden that many property managers are not equipped to handle [1]. The exception: if the pool already exists and is already compliant, keep it. The rent premium on an existing pool is pure profit because you did not pay the install cost. But installing a pool on an investment property is almost never the optimal use of $60,000. That same money builds a granny flat that generates $350 per week in rent and adds $120,000 to $150,000 in valuation. Pools are for owner-occupiers. Granny flats are for investors. ## Trap 2: premium kitchen renovations in rental-grade suburbs I saw an investor spend $45,000 on a kitchen renovation in Cranbourne. Stone benchtops, soft-close drawers, integrated dishwasher, designer splashback. The kitchen was stunning. The rent increased by $30 per week. Thirty dollars. That is $1,560 per year on a $45,000 investment. A 3.5 per cent return. You would have been better off putting the money in a savings account. The problem is suburb-relative value. In Cranbourne, where the median rent is $450 to $500 per week, tenants are not paying premiums for stone benchtops. They care about the number of bedrooms, proximity to schools, and whether the property has air conditioning. Kitchen aesthetics rank well below those practical considerations [2]. Our renovation approach: spend $8,000 to $12,000 on a kitchen refresh. New laminate benchtops, painted doors, new handles, new splashback, new tapware. The result looks modern and clean. The rent uplift is 80 per cent of what the $45,000 kitchen achieves. The return on investment is six times higher. Save the stone benchtops for Toorak. ## Trap 3: structural renovations without valuation modelling Knocking out a wall to create an open-plan living area costs $15,000 to $25,000 depending on whether the wall is load-bearing. Add replastering, electrical rerouting, and finishing, and the total easily reaches $30,000. The rent impact: minimal. Tenants do not pay more for open-plan versus enclosed living areas in the price brackets where most investors operate. The valuation impact: also minimal, because the bank valuer assesses based on bedroom count, bathroom count, land size, and comparables. An open-plan renovation does not change any of those metrics [3]. Structural renovations make sense when they add a bedroom, add a bathroom, or create a self-contained unit. A wall removal that converts a four-bedroom house into a three-bedroom house with a larger living area is actively destroying value. You just lost $30 to $50 per week in potential rent by eliminating a bedroom. Our rule: never remove a bedroom. If anything, add one. A $6,000 partition wall that converts a large living area into a fourth bedroom adds $40 to $60 per week in rent. That is a 35 to 52 per cent annual return. ## Trap 4: excessive landscaping I have seen investors spend $15,000 to $25,000 on landscaping. Retaining walls, established trees, irrigation systems, decorative stone, outdoor lighting. The rent premium for premium landscaping in a $600,000 to $800,000 suburb: close to zero. Tenants in these price brackets want a functional backyard. A level lawn, a clothesline, and a basic garden bed. They do not value — and will not pay for — architectural landscaping [4]. Moreover, extensive landscaping creates maintenance obligations. Tenants are responsible for reasonable garden upkeep, but if you install a complex irrigation system and 30 species of ornamental plants, you are setting yourself up for disputes about what constitutes reasonable maintenance. Our landscaping budget for investment properties: $2,000 to $4,000. Level the lawn, add a garden bed with low-maintenance shrubs, lay some mulch, and move on. Every additional dollar spent on landscaping beyond that level is vanity. ## Trap 5: premium fixtures in areas tenants will damage Marble bathroom tiles. Hardwood timber floors. Designer light fittings. Custom built-in wardrobes. All beautiful. All terrible for rental properties. Marble chips. Hardwood scratches. Designer fittings break and replacements cost five times the standard equivalent. Custom built-ins get damaged and cannot be repaired with off-the-shelf components [5]. The renovation principle for investment properties is simple: use the most durable, most replaceable materials available. Porcelain tiles instead of marble. Hybrid floating floors instead of hardwood. Standard LED downlights instead of designer pendants. Flatpack wardrobes that can be replaced for $500 instead of custom joinery that costs $3,000 to repair. Every renovation decision should answer two questions. Does this increase rent by more than its cost over five years? And can it be repaired or replaced cheaply when a tenant damages it? If the answer to either question is no, do not install it. Across our 350-plus managed properties, the renovations that deliver the strongest ROI are consistently the simplest: paint, flooring, kitchenette additions, and bedroom partitions. The combined cost is typically $13,000 to $25,000. The rent uplift is typically $150 to $400 per week. Those numbers tell you everything you need to know about where renovation dollars should go. Stop renovating for Instagram. Start renovating for the spreadsheet. ## References 1. [HIA, 'Swimming Pool Construction Costs', 2019. Average pool installation: $40K-$80K. Annual maintenance $1,500-$3,000.](https://hia.com.au/) 2. [PremiumRea renovation data. Kitchen renovation ROI by suburb price bracket. $45K renovation in Cranbourne: $30/week rent uplift.](#) 3. [Australian Property Institute, 'Valuation Methodology Residential', 2019. Bank valuation based on bedroom count, bathroom count, land size, and comparables.](https://www.api.org.au/) 4. [PremiumRea property management data. Landscaping spend vs rent premium correlation across 350+ managed properties.](#) 5. [PremiumRea maintenance records. Fixture replacement cost comparison: standard vs premium materials in rental properties.](#) 6. [CoreLogic, 'Renovation Impact on Property Values', 2020. ROI analysis by renovation type.](https://www.corelogic.com.au/research) 7. [Domain, 'Renovation Returns Guide', 2020. Which renovations add value and which overcapitalise.](https://www.domain.com.au/advice/renovation/) 8. [REIV, 'Rental Premium Analysis by Property Feature', 2019. Rent uplift by renovation type in Melbourne.](https://reiv.com.au/) --- Source: https://premiumrea.com.au/blog/renovation-mistakes-overcapitalising-five-traps-investors Publisher: PremiumRea (Optima Real Estate) — Melbourne buyers agent