How much value does an extra bedroom add to your investment property?

Property investors must weigh up various features when purchasing new homes to add to their portfolios. Location, price, local regeneration projects and demand are just some of the things that you'll need to scrutinise when making your decision.

One important choice is the number of bedrooms in the property. This may seem fairly arbitrary, but homes with one, two, three or more bedrooms can be significantly different in terms of cost, desirability and resell value.

You should research what types of home are popular in your chosen areas, as well as what tenants or buyers you are hoping to attract over the short and long term.

To help answer these questions, let's examine how much an extra bedroom will cost and what value it will bring to your investment.

Calculating the additional value

Working out how much an extra bedroom is worth isn't an exact science. It's very difficult to calculate an average due to the differences in property types, where they are located and the existing room ratios.

For example, research from Property Observer showed that terraced homes with too many bedrooms and not enough bathrooms were much less valuable than well-balanced properties. Dwellings with three more bedrooms than bathrooms are worth up to $205,000 less than properties with an equal spread.

Nevertheless, 'Property Investing Made Simple' author Andrew Crossley has offered an estimate that could help you judge whether or not it's worth opting for an extra bedroom.

He told The New Daily that an additional bedroom is worth approximately $95,000 based on calculations using Real Estate Investar software. Mr Crossley's total represents the average difference in median price of three- and four-bedroom properties across six random suburbs in Australia.

Is it worth getting an extra bedroom?

While the analysis for The New Daily is a good starting point, it doesn't represent the whole story.

Real Estate Institute of Victoria (REIV) research, published by Domain, revealed that an extra bedroom could add anywhere from $160,000 to $500,000 to property values in sought-after suburbs of Melbourne when choosing between two- and three-bedroom homes. 

But bigger isn't always better; REIV data from May revealed that two-bedroom dwellings are experiencing the biggest price growth in Melbourne's inner ring. The median price of these properties climbed 14.7 per cent year on year in March 2017, while four-bedroom homes in the same area increased only 8.5 per cent. 

Another factor to consider is the cost of renovations. Data from the Archicentre Cost Guide, cited in the Chronicle, showed that the cost of adding a room to your home is usually between $19,000 and $34,000 at a minimum.

You must therefore be sure that such a sizeable investment will lead to a corresponding rise in value for the home. Of course, renovation costs can be minimised if you are simply converting an attic, cellar or other space into a bedroom.

The quality of the workmanship is also crucial; low-quality add-ons could decrease rather than increase the value of your investment property.

Taking the next step with your property investments

As we can see, there are various difficulties with estimating how much value an extra bedroom will add to your property.

The exact figure will depend on the property's location, the availability of similar homes, the size of the bedroom, buyer preferences and the ratio of bedrooms to other rooms, among a multitude of other factors.

Adding an extra bedroom to your property could increase the asking price.

If you're thinking about adding a bedroom to an existing property, or are weighing up the benefits of purchasing a home with extra bedrooms, you should contact an expert.

Property investment is a major decision, so you'll want to ensure you're fully aware of everything that could affect the value of your home, both now and in the future. To discuss your options, please contact PI Store for more information.