Renovating your Investment Property
Buying an investment property requires a lot of thought, as does deciding whether to renovate or not. When buying an investment property there is a tendency to fall into a notion that changes need to be made in order to make a property not only more appealing but also more liveable.
What investors must take into account is that whilst their investment properties might not tick all their boxes, it could meet a lot of your potential tenants. Therefore, before renovating, there are a few key things that investors need to consider.
Does the property really need renovating?
Am I renovating the property to align it more with my own personal taste, or am I considering the requirements of tenants?
Are these changes cosmetic or infrastructure based?
Smart renovations can undoubtedly increase rental returns, however, renovating a property isn’t only about what changes you make, but also understanding when to make the changes.
Understanding the Difference between Renovation and Repair
In order to boost the rental return of an investment property, an investor may consider making renovations or repairs. Sometimes, simple repairs such as changing the handles on kitchen cabinets, or replacing old tap and shower furniture may be all that is needed to spruce up the property and therefore increase the rental appeal.
In other situations, renovations like the knocking down of walls to create a larger space or adding an additional room might be needed in order to create interest and meet the local demand.
Before embarking on renovations and/or repairs, consider the shortcomings of your investment property and list what areas need an upgrade in order of priority. Have a discussion with your local builder and get quotes, recommendations, and time frames on how long the work will take, bearing in mind that generally renovations will take longer then repairs, and this may mean a period of time without rental income.
Do your research and ensure that the changes you are considering making are for the right reasons - making the property more livable, rather than to suit your own personal needs, tastes and requirements.
Understanding the Market Demand
Knowing the right time to renovate also comes down to understanding the market demand. For example, market demands may indicate that properties with an additional bedroom (rather than a second living area) may be more popular. With this in mind, you may consider to renovate your investment property so that a space can be converted into an additional bedroom in order to attract more potential tenants to the property.
However, local market demands don’t necessarily dictate big changes. Often prospective tenants are just looking for a clean, liveable space in which they can picture themselves setting up as their own. Renovating an investment property can simply come down to just replacing outdated fittings with modern finishes and painting walls and fixtures in neutral colours in order to attract more demographics.
It is also important to understand market demands before commending renovations if you want to save on costs, and loss of rental income. Investors could potentially go through the process of infrastructure related renovations only to find out that the rental marketing isn't overly saturated with prospective tenants. investors will have to consider not only the renovation expenses but also a potential time-frame of loss of rent whilst the investment is sitting vacant waiting for the right tenant.
Understanding the Capital required and the Costs/Conditions Pertaining to Tenancy
Understanding when and if to undergo rental property renovations often boils down to investors wanting more money from their investment. Yet, what happens when renovations are undertaken unnecessarily, or even, at the wrong time? Investors could end up losing out on money instead.
Before any form of changes are initiated, consider what truly needs to be done in order to increase profitability and livability. After deciding on the changes needed and undertaking market and demographic research to back up the viability of the renovation, investors should only then start thinking about capital, costs and conditions.
Sit down and create a budget for the renovation, therefore there should be on surprises when the final bills are handed in. Investors should know exactly how much the renovations are costing before proceeding. That way, before any work begins, investors know they can comfortably afford the renovations, and at worse that they can afford a period of no rental income if the property remains vacant for a period of time after the renovations are completed.
It is also important to ensure that you plan to undertake the renovations legally and safely. Acquire trades with licences and relevant certificates, and submit any plans or permits to your local council if needed.
Things to Consider while Planning your Renovation
What would make you feel more at home in the property?
Due to housing affordability, many first home buyers, such as young couples and families, choose to rent instead of buying a property. Therefore, long-term tenants are common, so it is important to make them feel at home. Look at your rental property and determine if things like dishwashers, dryers, and/or washing machines are going to make for increased liveability.
What are the tenants’ rights?
Before you launch into repairs and/or renovations, you need to consider whether you are going to disrupt any tenants who are currently living in the property.
Most tenants would be happy to live through minor repairs if they are going to reap the benefits, but you may have to consider alternative options to ensure they are comfortable during the repairs/renovation. Depending on the tenancy regulations in your state, you may need to give your tenants plenty of notice by law if you require them to vacate the property even temporarily.
So is it Time to Renovate?
Understanding when and if to renovate requires practical thought. Investors need to consider a multitude of outcomes, questions and options. From determining if the scale of the changes are big or small, to working out the costs involved, deciding to go through with renovations is a case of what to change and when to change in order to get the best results for your investment.
After determining what your property needs, understand the local market demand and the potential tenants you are looking to attract. If you do decide that your investment property needs an upgrade you don’t have to undertake it alone. The team at Lot 42 Real Estate offer a renovation management service which can help you, with their extensive property and market knowledge, they can ensure the renovations you are making are both profitable and beneficial to your investment return.