Owning an investment property is about turning a profit.
But it’s not a “set and forget” investment. Not only do you need to regularly maintain the property, there’ll come a time when you might want or need to engage in renovations.
So how should landlords approach renovations?
Before you renovate: Ask three questions
Data from the Housing Industry of Australia reveals a $36.261 billion was spent on home renovations during 2019. But before you jump head first into renovating your investment property we recommend considering these three questions:
- Why should you renovate?
- What should you spend your money on, and how much should you spend?
- When is the best time to renovate?
Answering these questions will help you determine if and when you should renovate. So let’s take a look at each of them.
Reasons to renovate
Renovations have the potential to add overall value to your investment property as well as possibly leading to greater rental yield. So it makes sense to do your sums to see if renovating is worthwhile for you.
Recent increases in the number of people looking to rent means greater competition among tenants to secure a property. And if your property is in sparkling condition it will be more attractive to potential tenants. You’ll then be in the enviable position of being able to choose the most suitable tenants. Plus, you can set a higher rent if your property has more to offer than the competition.
Or perhaps you’re renovating with a view to selling. If so, make sure you do your homework – take a look at similar properties to see where you might improve yours, and talk to agents about what buyers are looking for in the current market.
There’s another major factor that influences which renovations you may choose to undertake, and that’s money.
First, figure out your budget. This will determine whether you stick with repainting and some updated light fittings or go all out on a refurbished kitchen and bathroom.
Next, think about how best to spend your money. Simpler tasks such as a fresh coat of paint or new carpet can breathe life into a property, offering good value for money and increasing the property’s attractiveness to tenants. And something as straightforward as giving the front entrance and any gardens a makeover can really boost the property’s visual appeal.
If you’re renovating before selling, you should factor into your budget any capital gains tax that might be payable upon the property’s sale. This is likely to affect how much you’re prepared (or are able) to spend on the renovations. Also take into account potential fluctuations in the market: how might this affect the sale price of your property, and will this impact your renovation budget?
When to renovate
If you currently have tenants it can be difficult and disruptive to undertake anything more than necessary maintenance tasks.
But if you have long-term tenants who are happy to stay, and who you’re happy with, you might be able to negotiate some smaller renovations with them while they stay in the property. This could be beneficial for both of you. Talk with your property manager about what’s possible.
Of course, the ideal time to renovate is when the property is vacant. In this case, it’s a good idea to give yourself a realistic, workable timeframe, and bear in mind that you won’t be receiving any rent for the duration of the renovations.
Looking for an expert opinion on renovating your investment property? Call our experienced property management team today.