• Helsby Construction Group

Renovating an investment property ? Here's what you need to know !

Updated: Jul 12, 2020

How do I figure out what to renovate to gain the most return on my investment property?

Are you trying to decide whether or not you should renovate your property and make improvements before you get new tenants to move in? Or are you thinking about selling in the near future and keen to make the most value come sale time?

Whatever your reasoning may be, if you’re considering renovating, read on to help get a better understanding around the key things to consider before getting started.

Some rental owners neglect to maintain their properties, and it’s to the detriment of their future investments

Common views from rental/investment property owners:

  • The small upgrades I make over time will just get worn out and broken by the tenants living there, so there’s no point.

  • I don’t understand much about renovations and building work.

  • I’m not certain about where to begin or whom to talk to so it’s a bit of a risky investment.

  • Why would I want to invest in something I’m not going to see the benefits of myself?

These are all valid points; however, we need to look at what the data says, and base judgements off that.

Calculating the potential ROI of your rental property after the renovations

An easy way to calculate the return on your investment from a renovation, is to approximate the annual rent increase after renovations are done. Then divide that into the renovation cost.

For example, imagine you spend $7,000 on making improvements to your kitchen between tenancies - not a full kitchen renovation, but enough to ensure it looks and feels a lot nicer than comparable kitchens in similar properties.

After completing these works, you are able to increase the weekly rent of the property, by approximately $30-50 per week.

Not only will this have paid itself off within 2.5-4 years but you then also have the resale value of the work once it is completed.

If you find yourself unable to justify an increase in the rental to help pay off the improvements in a reasonable time period, it may not be the right time.

Five things you need to know before you consider renovating your rental

  1. Remove the emotions: When undertaking renovations on your investment property, avoid looking at it like it’s your own home and ensure it is a data-driven decision. What you want for your home is not necessarily what your investment needs to ensure the best return.

  2. Create a strict budget and research thoroughly: Research will support the need to ensure you create room for a contingency for any unexpected costs. It is common with renovations for costs that you haven’t foreseen, appearing – for example, if you’re renovating the bathroom, you may find that there is water damage in the subfloor which is common with the older properties.

  3. Choosing the right areas to renovate: Renovations should not only increase the overall property value but should result in an increase of the rental you can charge

  4. Think long-term: Good renovations are “bulletproof” in the long term which means you are best to think about spending a little more now to ensure longevity. A durable renovation will outdo a fancy renovation.

  5. Seek out professional help: Don’t forget to consult your accountant, finance specialists and local renovation company (project manager) – make an informed decision based on data.

If you are looking at getting a small renovation off the ground over the coming months but don’t know where to start, then get in touch with our team on 09-218-5255, or, for a no obligation initial concept meeting.

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