How much value does an extra bedroom, bathroom or granny flat add to a property? Kent Lardner talks about the work he is doing through View and the tool that is available there to do the calculation and the good news is it’s FREE.
Kevin: Every property investor wants to get as much out of their property as they possibly can, so we always get around to talking about adding things, like a granny flat or an extra bedroom or even an extra bathroom. Wondering then, how much value does that add? Is there any way for you to tell before you go in? Because of course, the risk here is that you may just over-capitalize. That’s what I want to talk with my next guest, Kent Lardner From view.come.au, one of our supporters.
Kent, you’ve done a lot of work on this over the years, haven’t you? Welcome to the show, by the way.
Kent: Thank you very much, Kevin. It’s great to be here.
Yes, done plenty of work in this space, and typically, what we do is we try and model houses based on what we call attributes. We try to predict the house price based on things such as number of bedrooms, the street type that it’s on, and how many bathrooms it has.
So, a lot of that modelling and a lot of just, actually, plain and simple research can answer those questions.
Kevin: You would know because that’s what you do, but as a consumer, is there a tool somewhere that will tell me, if I just simply plug in one extra bedroom, what will it do?
Kent: Yes, we’ve created a property page for effectively, every address in the country on View. If you go to the site and just follow the Research link, you can enter in your address, and then from there, scroll down the page and you can change the bedroom count on that.
So, if you’re currently a two-bedroom and you want to do a “what if” analysis – “if I added a bedroom and make it three” – you can change it, and then hit the button that says Update. What it will do is it will automatically return to you what we think are well-matched comparable sales.
Then what the user would do is cycle through and say, “No, I don’t like that one; get rid of it,” because the matching algorithm can only see things such as distance and time and size. It can’t really see quality.
That‘s where the human eye comes in, and actually, you go through and cycle through and pick the three comparable sales that work the best for you, and that will give you a price estimate instantly.
So, through that tool, you can understand really quickly, within a few seconds, what the price change could be through adding a bedroom or adding a bathroom.
Kevin: Wow. That is a great tool for someone who is looking at renovating or doing some work on the house before they get into it. As I said at the introduction there, the great risk there is that you will always over-capitalize.
Kent, can I ask you, with something like a granny flat, which is fairly new on the horizon, is there any way to estimate what value, if any, that would add to a property?
Kent: I think there are probably a couple of approaches you can take with that. What I’ve always done with granny flats is the first thing I do is look at what the rental return could be. So, it’s not really a capital gain calculation; it’s more what is the rental return?
But when you look at it, if it looks and feels part of the house, you can actually add it as a bedroom, add it as bathroom, and expand the size of your house – so, treat it as if it is part of the house – and that can give you a rough idea what the additional attributes can add.
Kevin: Are there any other additions we can add to a property that will add value? You mentioned there about a bathroom, and so far, we’ve only just focused on bedrooms, but what about if I were to put an ensuite into a property? Have you got any estimate on what that would add?
Kent: Yes. Typically, we do the whole integers, but a lot of the American sites, you will probably see them, they do one or 1.5 bathrooms to capture the ensuite. We found in Australia that the measurement of what is a bathroom and what’s an ensuite a little bit challenging. Most of the property data providers, most of the databases in Australia, typically, just count in whole bathrooms – one, two, or three – so it’s always a little bit of a challenge with the ensuite.
An interesting thing with bathrooms, however, is most of the time a one-bathroom property is very different to a two-bathroom property because typically, the older houses that are yet to be renovated are one-bathroom, whereas suddenly, when you move up to a two-bathroom property, the price jumps up considerably, and usually, that’s because they are the renovated properties. So, it’s quite a different sub-market as soon as you move to that two or three bathrooms.
Kevin: Sorry to stay focused on one thing, Kent, but I’m really keen to hear from you how I can make sure that I’m not over-capitalizing when I do an improvement on a property.
Kent: I think the big thing is that the risk increases as you get larger and larger, so jumping from a two-bathroom to a three-bathroom has a greater risk of over-capitalizing when you compare that to, say, going from one bathroom to two. Or jumping from four bedrooms to five.
I think the key is that the lowest risk, greatest opportunity is always best in a higher-priced market with a smaller house.
Kevin: Great advice, Kent Lardner. Kent is from View.com.au. Wonderful opportunity for you to go in and experience the site, and Kent, you did say that every property in Australia effectively is listed on the site, so you can go in and interrogate it from there. Is that correct?
Kent: You can, and it’s all free.
Kevin: How good is that? View.com.au. They are one of our supporters, and we thank them for that. Kent, thank you so much for your time.
Kent: Thank you, Kevin.