In the world of rental properties, landlords strive to keep their overhead low and their returns high. One of the best ways to achieve this is not to spend money on a rental unless necessary. Unfortunately, living by this rule can prove to be detrimental to your property and the rental value of your home.
Investing in and updating your investment property is often essential in order to market your home more effectively and to attract the best future tenants. The best tenants won’t be interested in a property that does not offer more value and better options. This begins by having a clean, updated, and inviting home for renters.
Additional reasons why a landlord should update their rental include helping to maintain the structural integrity of the property, as well as increasing the property value.
Although a landlord’s intent may be to rent the property, maintaining the home and improving on it will also make it easier to sell if necessary. A typical remodel can result in a 70% return on investment.
ROI means return on investment. It is vital for all investors to know their ROI before purchasing any investment. To calculate your ROI, you must first determine your net profits. This is done by taking your potential investment gains and subtracting your investment cost. These net profits number is then divided by your investment cost, this final number will determine your ROI.
ROI = (investment gain – investment cost) investment cost
OR
ROI = net profits investment cost
Your investment costs are usually determined by adding up all of your costs on the property, including down payment, closing costs, interest rate, repairs, and renovations. Additional costs to remember including ongoing expenses like insurance, taxes, and maintenance fees.
Your investment gains would all be compared against the cash flow that your property would generate, more specifically, your rental income.
Most investors expect to earn a 10% return on their investment; this is similar to what the average person earns on investing in stocks. Depending on the market and location of your property, a good rental investment earns 15% ROI, while a great one can get you around 20%.
When assessing which rental property renovations would get an investor the biggest bang for their buck, it is often the same things a person should consider when preparing a home for the rental market. Whether you invest in higher or mid-range products is dependent on your location, and the home and community itself.
The following list gives a breakdown of what investors should consider renovating, and how to renovate and still retain a positive cash flow on their investment.
A kitchen is the heart of the home, and should be presented as clean, fresh, and inviting. A rental space does not necessarily need a high-end remodel, but the cabinets should be in good condition and function properly. This can sometimes require replacing cabinets. If the cabinets are simply outdated, paint can be a very effective tool in updating a kitchen.
Additional updates and selling features include hardware and countertops. Countertops do not need to be a more expensive stone but can be a neutral or stone like laminate. Other updates that can attract prospective tenants include clean appliances. While not all rentals need to provide a fridge and microwave, including them in a rental property can be a good incentive to attract more applicants.
Bathrooms, like kitchens, require clean and functioning cabinets. These can be quick and easy updates that immediately update the whole look of the house. Depending on the age of the rental property, you may wish to consider additional updates including the floor, faucets, toilet, and tub. Deciding whether or not to make these bigger changes in a bathroom depends on the condition of the pieces.
Curb appeal is one of the best ways to immediately attract people to your home. It is typically the first impression that a person has of the property and can set the tone for the whole house. Often, what a person sees on the outside of the home can be an indicator of how well the home is cared for and maintained on the inside as well.
Flooring, especially carpet, can endure a lot of wear and tear between tenants. If possible, consider replacing the carpet when necessary, or investing in more durable flooring. Different options include tile or laminate flooring. By investing in more durable flooring from the beginning, you decrease the likelihood and need to replace the flooring – especially carpets – more frequently.
Paint is one of the cheapest and best tools in a remodel arsenal. It can have one of the greatest impacts on any space. From painting cabinets to walls to doors to baseboards, it can immediately transform a home. Many landlords paint a home between each tenant, as it allows them to patch holes and refresh dingy, dirty, and scuffed walls. Paint can also be used on the outside of the home to make the curb appeal more appealing.
The age of the home may dictate a greater investment into the home, requiring remodeling to the structure of a property. It is typical for investors to only purchase properties that are 15 years old or less, this can help them to avoid some more substantial and necessary renovation costs. These costs may include replacing or repairing a roof, replacing windows or HVAC systems, and investing in other high-ticket items.
Remodeling a home can be quite stressful. There are many laws, regulations, and criteria that should be considered throughout the process. An important aspect of a remodel for any investor is ensuring that the process is fast, as the longer the property sits unoccupied, the more it costs the owner.
By working with a well-experienced property management company, they will be able to help you better understand your ROI, recommend different maintenance and repair companies, and streamline the process. This will ensure that your property is well-equipped to endure the normal wear and tear of tenants.
TREC Broker License # 9001367
CALL US