The government’s interest deductibility changes mean property investors will soon be taxed more. This means that property investors need to increase their properties’ cash flow to pay the extra tax. Over the next six issues of New Zealand Property Investor magazine, you’ll learn the six-step Cashflow Hacking™ framework. The first step is to add an extra bedroom. This is the quickest and most cost-effective way to increase a property’s value and cashflow. But this will only be cost-effective if you don’t need council consent. That means adding the bedroom within the existing floor-plan and leaving loadbearing walls where they are. So not every property can be reconfigured to add a bedroom easily.

Size of house

For the bedroom to add value and increase the rental income, it needs to feel like a natural part of the house. So, you need to buy a property with enough space to accommodate it, without creating a pokey or unusual layout. The first indicator of whether a house has enough floor space is square meterage. To convert a two-bed into a three-bed property, you generally need a minimum of 85sq m. For a threebedroom to four-bed conversion, you need 95sq m.

Houses built between 1960 and 1980 tend to have conversion potential. These properties often have superfluous floor space. Dining rooms and kitchens – separate from the main living space – can often be changed into bedrooms.

Adding an extra bedroom case study

Here’s an example of where I’ve added an extra bedroom to a property located in Melville, Hamilton. The below floor plan shows the upstairs of (what was) a three-bedroom property (twobedrooms shown).

The kitchen was separate from the main living area. So, I walled it off and renovated it to create the extra bedroom.

I then installed a new kitchen in the living-dining space to create one large open plan kitchen/living area. One final change was to convert the old hot-water closet, which was no longer needed, into the wardrobe for the new bedroom.

How much does it cost

The cheapest way to add a bedroom is to convert an old dining room. This usually costs $7,000-$8,000, including a budget for your licensed building practitioner, painter, gib stopper and electrician. In the above example, converting the kitchen to a bedroom cost $7,500 + GST. However, there was also the additional cost of building the new kitchen. However, both added value and rental potential.

How much extra rent can you get?

The additional rent received is often over $100 per week but depends on your property’s location.

To estimate the additional rent, I either use data on the Tenancy Services website or from the back of NZ Property Investor magazine.

For instance, in last month’s issue of this magazine, the median rent for a two-bedroom house in Hamilton East was $440 per week. The median rent for a three-bedroom home in the same suburb was $550.

You can then estimate that adding the extra bedroom will add about $110 a week to what your property could rent for.

This gives you a ballpark but is not an exact science. Through your other changes to a property, you can also increase the rent further.

The increase in value is harder to isolate. That’s because you’ll often make additional cosmetic changes to the property. You’re not just adding the extra bedroom.

From my experience, The value will often increase by $100,000 or more when adding the extra room. This can be even larger in higher value areas, like Auckland.

Adding an extra bedroom is just the start

Adding an extra bedroom is one of my compulsory buying rules both for my clients and me.

But it’s just the start. In total, there are six steps to Cashflow Hack™ your investment property. In next month’s issue, you’ll learn how to assess whether there are other creative ways to rent out your property to increase the cashflow.

Ilse Wolfe is Director of Opes Accelerate Coaching Program. To enquire about memberships and how you could accelerate your property investment pathway contact Ilse at [email protected]. For further information visit www.opespartners.co.nz/accelerate. Follow Ilse at @ilsewolfenz on Instagram.