Renovating Your Investment Property?
Here are some do’s and don’ts to remember when renovating to boost returns.
As landlord, it’s sensible to look for ways to maximise your return on investment, and renovating your investment property is a great way to do it.
Not only does a renovation add capital value over time, it can boost your rental return and increase cash flow.
In simple terms, the aim with any rental renovation should always be to boost your bottom line - not just make the property look good for the sake of it. Every decision you make needs to reflect this goal.
Vastly different from renovating your own home, refreshing a rental needs to be all about the numbers.
While it’s easy to get wrapped up in the emotion of renovating any property, if you want to achieve a high-profit makeover, you need to take a step back and look at things logically.
Here are some do’s and don’ts to keep in mind when considering your next investment property renovation.
DO Have a plan before work begins.
Rental or not, no renovation should begin without a plan.
And it goes without saying that the first plan you need is a budget.
When it comes to renovating investment properties, a good rule of thumb is to avoid overcapitalising and not to spend any more than 7% - 10% of its current market value.
For example, if you were to spend $20K on a renovation, you’d hope for an increase of around $40-$50K in value and a 15-12% rental return boost.
The second plan you’ll need is a ‘Scope of Work’ document.
A scope of work document is essentially a list of all the work you’d like done - by when - that you share with your contractors.
Not only does it give them clear direction for the work they’ll be undertaking, it means you can organise the order of work logically so there are no unnecessary double ups or overlaps during the process.
A scope of work also ensures you stay on track with your budget and avoid unnecessary cost-blow outs.
And finally, make sure you get all your planning approvals in place with council and body corporates (as necessary) before any work begins.
Remember - if you fail to plan, you plan to fail.
DO Use professional trades and seek advice.
While doing a lot of the renovation work yourself can seem tempting, when we’re talking major upgrades, getting things wrong could end up costing you a lot of time and money.
So leave it to the experts.
Not only will a professional get the job done much faster than you can, they’ll have the knowledge to get it done cost-effectively, and the right tools to achieve high quality results.
Specialist tradies also have all the best industry networks to handle unforeseen issues, and will make sure the project stays on schedule.
DO Appeal to the masses!
When we’re talking rentals, the aim of the game is to appeal to as many people as you can.
Why? Because it increases your chance of finding a tenant, and shortens vacancies.
So keep your décor neutral!
Timeless colours and finishes always win over individuality, and it pays to keep your own personal preferences out of it.
Think soft beige, whites and creams to create the feeling of space, paired with modern finishes.
And while it’s tempting to add bright features into the kitchen or bathroom, it always pays to keep these areas neutral too - try lovely white tiles and elegant chrome fittings.
DO Focus on things that will ‘move the dial’.
With a focus on increasing return on investment, not all areas are equal.
You might love the idea of adding a beautiful water feature or a swimming pool out the back, but realistically?
These things aren’t really going to help your bottom line in the long run via higher rental returns or capital gain.
So focus on the things that will.
For instance, kitchens are the heart of the home and arguably the most used. So update them to reflect this. Install new appliances and repaint (or replace) tired cabinetry and benchtops.
Regrout, upgrade tapware and replace toilets or vanities that have seen better days in the bathrooms.
Fittings are a cost-effective way to give your property a modern facelift and make it feel inviting. So install new blinds, ceiling fans, light fittings and door handles.
Updated walls and floors also pack a punch, so give the place a fresh lick of paint and switch out impractical flooring for hardwearing carpets, tiles or modern timber-look coverings.
And often overlooked - storage. Add built-in robes to bedrooms, extra shelving to garages and even a secure garden shed out the back.
But how do you decide which to focus on first? Think about it like this - if something’s not going to boost your return in the long run, don’t do it.
As with any home renovation, there are also things to avoid when updating your rental property.
DON’T Hire the wrong contractor.
While there may be plenty of tradies in your area that could get the job done, not every one of them is right for your rental renovation project.
Some may be too expensive, some may be too unreliable. It’s your job as the property investor to find a happy medium.
First things first, make sure they’re licenced and insured. And don’t take their word for it!
Check online reviews, call references and make sure their licence is legit - because not every ‘expert’ is who they say they are.
Fully licenced professionals are less likely to cut corners or take shortcuts, plus you’ll have some recourse if thigs go wrong.
Once you’ve narrowed it down, get no less than three quotes for the job.
Unlike your own home, where the focus is on the very best quality, when it comes to renovating investment properties, finding someone who will do a pretty good job for a reasonable price is always your best bet.
Remember, while the more expensive ones may be incredible at what they do, you don’t need Leonardo da Vinci painting your rental.
And finally, get everything in writing. Price, scope of work, start and finish dates and a payment schedule.
A bonus tip? Make sure payments are split - never pay the full amount upfront, and hold the final payment until all work is complete.
DON’T Overcapitalise (or skip the groundwork).
The best way to make sure you don’t overcapitalise on your rental renovation is by doing some solid research before you start.
Apart from the budget you’ll set right at the beginning (~7-10% of market value remember!), managing your own expectations against that of surrounding rental market is key.
Find out what other rentals in the same area are offering, and use that as a baseline for decisions.
You want your renovations to be appropriate for the area.
For instance, if most nearby rentals have laminate benchtops and standard white appliances, spending a fortune installing top-of-the-line granite and an integrated stainless steel cooking system isn’t going to make sense.
Once you know what the ‘norm’ is, step up your renovations just a little so your property will stand out against the competition - just be careful not to overindulge.
Research current design trends and look for styles that will stand the test of time and appeal to a wide range of tenant. Go for function over flamboyance and make sure every decision made is an economical one.
But DON’T Scrimp either!
While the goal is to keep costs down, cheapest isn’t always best either.
In fact, sometimes the cheapest things can turn out to be the most expensive over time, because they wear out or break quicker, costing you more in replacements.
So don’t be so tight that you compromise on durability.
Everyone knows that a $13.50 Kmart toaster is likely to wear out well before a $200 Breville. But somewhere in between, you might find a $90 toaster that does the job and manages to last.
With every selection, you need to weight up price vs. longevity. This goes for paint, appliances, fittings and fixtures.
And in practical terms, sometimes the durable options can bring in more rent - modern floating timber floors are a cost-effective and robust choice that tenants love because they look amazing and require little upkeep!
At the end of the day, as a landlord, your job is to weigh up the cost of your rental property renovation, against the benefits your wish to see.
But by making sure you’ve got some solid planning, good advice and a sensible budget in mind, you’ll be well placed to achieve a great return on investment.
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And if you’d like some expert guidance and support? We’re ready and waiting to answer all your questions!
If you’re just getting started, or looking for more valuable property investment tips, tricks and hints, check out these other handy articles on our blog:
× Frequently Asked Questions About Property Investment
× Is Investing In Property Still Worth It?
× How to Pick the Perfect Tenant for your Investment Property
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DISCLAIMER: All recommendations made by We Connect Property are general in nature and not to be relied upon as legal or financial advice. To ensure accuracy, we always strongly recommend seeking independent, professional advice tailored to your specific situation before making any investment or financial decisions.