Renovations for rentability are a necessary and constant reality for landlords. You want to maintain a high quality rental. Both for the longevity of your property as well as attracting the best tenants. Every renovation comes with myriad decisions about the cost, quality, and style of the materials. Landlords should make these decisions carefully. There can be a difference between a high-end renovation and a renovation that will give you the best return for your dollar.
Required Renovations for Rentability Versus Personal Preference
When evaluating potential improvements, start with what is essential for your rental to be rented out. For example, you must provide hot water, so a working hot water heater is a necessity. Your local laws may indicate how long a unit may be without hot water after the tenant has notified you. On the other hand, a ceiling fan or a new wall color may just be a bonus. These are things that you can forgo until the season changes or when a time may be more convenient.
Of course, repairs to ensure the safety and habitability of the property come first. Sometimes we have to do major repairs simply to keep the house rented. For example, installing a new heating system or replacing a leaking roof may cost tens of thousands of dollars. These repairs are not optional, even though they typically don’t add value to your monthly rental income. Unless you are replacing something that is truly worn out and broken down, a tenant may not pay more just because you have put on new siding or windows.
If you are rolling utility costs into the rental price, ensuring that all new appliances and fixtures are energy efficient can really pay off. New windows and doors that may cost a lot up front can dramatically reduce your utility costs and push up your profits. You can find online calculators to see how much you can save with an energy efficient refrigerator or hot water heater, or by using efficient light bulbs in all lighting.
When it comes to cosmetic upgrades, consider what the improvements will provide to you in extra rent. Assign an actual dollar amount to how much more you think you can get once the upgrades are complete. New flooring, countertops, and light fixtures might be a bonus, but will they add to your bottom line? Will you be able to attract tenants for a few hundred more dollars in rent if you install high-end fixtures? If you can sustain increased rental income over the life of the upgrade, you can turn your expenses into profit. If you will have to endure vacancies and have out-priced your neighborhood, a premium renovation might cost too much. It may be too little of a benefit. Steer away from trendy materials that may go out of vogue. Keep the style neutral to appeal to a broad audience.
Watch your neighborhood
Comparable listings should be checked for clues as to which kinds of upgrades are appealing to renters. Pay attention to the properties that are increasing in rent. Which rentals seem to garner a lot of competition from eager tenants? While it is a huge undertaking, maybe adding a half bath will push your income into a new bracket. Adding a legal bedroom may make your unit much more desirable. It could also open the door for an additional roommate to split the rent, simultaneously justifying a higher rate and making it easier for renters to divide up and pay. It’s a big job, but the increase in income moving forward may make it worthwhile for you.
Of course, it is not reasonable to allow all of the features of your rental to simultaneously deteriorate without ever replacing them. Keeping on top of renovations will allow you to bring in a higher rental income, while ensuring that you are retaining your resale value should you decide to sell. Purchasing a below-market property, sprucing it up with some modest upgrades, and reaping the benefits of an increased rental income can be a winning plan in some markets.
When prioritizing your renovations for rentability, examine the value of an upgrade over the long term. The cost of a timeless granite countertop could be paid off within a few years of increased rental income, while the durable material may last for more than a decade. New carpeting to freshen up a bedroom should outlast your repayment schedule if you can get a few dollars more in monthly rental. Then, when you sell the property, you will not have to start renovating from scratch.
Renovations can snowball when your eyes get bigger than your budget. If you feel the need to update your rental unit, it’s time to put on your business cap and be sure that all of your renovations make money sense. While the style of your rental may not match your personal taste, it is important to separate this from the reality of whether your unit is able to be rented. The exception to this rule would be a landlord who lives in his or her rental as a resident as well as a landlord. Then you should assign some importance to whether you like the style of your dwelling. As always, remember that being a landlord is a business to stay on track. Keep your costs lower, and maximize your profits.