Considered renovating your existing rental property to add value and increase rents?
Today’s article is about making real MONEY by increasing the value of your property and increasing your cash flow – all without over capitalising.
To be clear, we renovate to add value to maximise the long-term performance of our portfolio not because it feels nice.
We must decide when to defer maintenance, and when to renovate to add value – to what standard and at what cost.
Unfortunately, while TV programs like THE BLOCK, make it look easy, it is very difficult to renovate to add value well consistently.
We must be extremely wise as to the allocation of our limited money and carefully consider the return on any investment.
If you haven’t renovated before, talk to your property manager regarding what to do and how much to spend.
As you get more confident you will become better at getting quality work done and staying on time and on budget.
1. When renovating an investment property don’t look at it as if it is your own home. Do not misinterpret, “It will it increase the value of the property and the cash flow” with “That would look nice”.
2. Do lots of homework and develop a strict budget but always allow a contingency for unforeseen costs.
3. A good renovation should increase the rent and also increase the value of the property. More income and more equity allow you to purchase more properties quicker.
4. A good renovation will be “bulletproof”. A “Durable” renovation will outperform a “Fancy” renovation long term.
5. Remember to check with your accountant to see what you can claim before starting.
I will renovate to add value, I will spend $10,000 painting the interior and replacing the worn out carpets to increase the value of your property by $30,000 and increase weekly rent by $30.
This would be a great outcome.
Sometimes though, we must spend money to renovate a property and we cannot get any immediate increase in rent.
This hurts but it is a cost of being a landlord and we MUST maintain our properties to minimise ongoing costs and secure good tenants.
We should have peace of mind knowing that any cost will be recovered over the long term in increased rental and capital appreciation.
1. Paint the interior and exterior
This will help increase its overall appeal and make the property feel newer. It shouldn’t cost too much and you can even do it yourself to save money.
Sometimes a good clean will bring carpets back to life but if your carpets are very old, it may be time to change them.
Shop around for seconds or short ends and get a decent carpet to make the property stand out and feel really homely.
If you have installed new carpet then make sure your property manager stipulates NO SHOES in the rental agreement.
Kiwis love outdoor spaces. Consider an area for kids to play or a deck where tenants can have a barbeque and entertain.
Tenants love to be able to bring their friends over and show off their outdoor space.
You can get a new kitchen nowadays for less than $10k.
However, have you thought about just updating the current kitchen?
Cost effective changes such as, painting cupboards and adding new handles, replacing a tired bench top and changing the tapware bring an old kitchen to life.
Always remember that this is a rental property, not your own home. Don’t get carried away.
You can paint bathtubs and shower linings to look like new. You could look to install a new vanity and tapware or just give your bathroom a good clean and a paint.
Renovate to add value, yes we love it, but it can get out of hand, so always do your homework beforehand.
Work with your property manager to develop a long-term maintenance plan and deciding what you are going to do each year.
Set yourself a budget, timeframes and find reliable tradespeople in advance.
The person managing your job will make or break it but ultimately you must be accountable for the project’s success get good advice and get educated.
It could save you many tens of thousands.
Check out our other blog 5 key steps to purchasing an investment property.
I have been a property investor for over 13 years and have created a multi-million dollar portfolio including residential and commercial. I could go on about this but I’m not here to impress you but to impress upon you that YOU TOO can create wealth through property whether that be $100K or $5 million. I’ve been through the boom – bust – boom so I know what it takes to stay in the market. I live locally in Otahuhu with my wife and new baby boy. I love to help and teach people about buying well and for long term. We can all make a quick buck but the real strategy is creating long term wealth.
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