Renovate Your Rental House?
Happily, spring 2022 isn’t all that far off. Many rental house owners are visualizing the possibility of renovating their properties. And what good reasons could they have for outlaying that money?
We’ll explore that in this post, along with what you need to consider before committing to a rental renovation or remodeling project.
The latest stats show rents are rising and well off renters with high incomes are willing to pay very high rent prices as first or second homes for themselves. Potential house renters are better off financially and alternatives are few, so landlords might be able to swing a renovation and come out a big winner.
Yet is the end value really worth the investment? Final dollar value can be calculated, however in general, best renovation value can be achieved via:
- higher asking prices for rent
- attract better quality tenants (high credit rating, high income families)
- lower maintenance costs
- reduced management time and effort
- more satisfied tenants who are actually expecting better value for their money (tenant experience)
- great demand for the renovated house or rental apartment within it
- interest rates low making it the right time for financing remodels or renos
- prepare the home for sale if this is appropriate to your business goals
The costs of maintenance and upkeep is often prohibitive. And finding reliable, affordable maintenance and service contractors to do fixes is tough. If you haven’t suffered through a costly burst water pipe, roof leak, or plumbing issue, you’re fortunate. The upcoming catastrophic type losses could hurt you financially.
With aging buildings, the inevitable repair and replacement costs have to be faced. Some US and European landlords are finding their aging rental houses and apartments are proving too costly to hold onto simply because of high maintenance expenses. Conclusion: Sell or Renovate.
With government subsidies for going environmentally friendly and energy efficient, there are ways to ease your expense. And the final reward is a unit that will rent at a much higher rent price, along with much lower maintenance bills. Wouldn’t zero maintenance be an ideal thing for you?
And the tax deductions could be a nice incentive. And if you can’t afford a complete overhaul, then doing a reno room by room is still a route to consider. Yet, just as with renovating an apartment, getting the job done quickly can lower costs overall.
Scaling Up for Better Financing, Revenue, and Long Term Value
Like many landlords or multifamily rental managers, you might have an eye on growth to scale up the variety and number of properties. That’s a great idea, however, too much maintenance work could be your Achilles heal.
If you haven’t enjoyed our post on the challenge of apartment renovation, please do when you can. Right now however, the topic is renovating rental houses. A house is a different type of property with many more components and maintenance costs. You can play your asset many different ways depending on your business model.
With the luxury priced market really heating up (low housing stock) and rising wages, renters are looking for a nicer rental home. They have little choice. And a house renovation offers incredible gains in equity and rentability.
So it’s all good when you renovate. With interest rates so low, this spring might be an ideal time to launch into it.
House Reno Planning
Before you decide to hire a reno contractor, there’s a few checkpoints to review to ensure your reno strategy is solid. These may force you to conclude the renovation isn’t feasible financially unless some major commitments happen. It may come down to whether you believe in the local rental property market and a positive economic outlook.
If that looks dark, then a better business decision would be to fix/upgrade what you can and manage your units professionally with a good property maintenance software solution. You may be able to cut down on the troublesome repair expenses.
If you’re committed to going forward, start with basic research:
- which rooms, features, mechanical and exterior elements are in the worst state of repair
- which renovation items are affordable for you?
- should you spend more than 15% of the home value on kitchen/bathroom renovation?
- is this a do it yourself project or something only for a renovation contractor?
- what is the total cost including financing charges that you can carry?
- will you need new appliances and which offer the heavy duty reliability you need (maintenance cost)
- how will current tenants respond to upgrades or will you announce the rent rise due to overhauling the house and wait until their lease is up, or they leave?
- tenant rights: will bylaws allow to you to reno while tenants are living in the unit? do you have special circumstances cited in your rental lease?
- will you have to give the tenant a discount while work is being conducted?
- should you offer to help the tenant move onto another rental, at least during the renovation period?
- will structural changes be needed (moving plumbing and electrical)
- should you replace siding, roofing, and use stone veneer for modern look?
- what costs could occur when you open the walls up and discover items the local regulations will cause you to cover (knob and tube wiring, pipe leaks, foundation cracks, etc)
- which styles are most practical for your target tenants?
- what do tenants say is the worst thing about the rental? (insulation, floors, storage space, outdated bathroom and kitchen)
- in this particular case, which upgrades will offer the best boost (kitchen, bathroom, flooring, fixtures, overall open design, painting, room expansion, improved HVAC, adding an office, deck and outdoor improvements)
You can draw up a more precise calculation of the full renovation costs at remodelingcalcultor.org.
Another reliable resource is on the This Old House TV show website and their return on remodelling cost chart.
If your house rental renovation calculation suggests the full renovation is not affordable, you will have to focus on improving the key rooms and features only. Those items are those the reduce maintenance, support high rent, and increase the value of the property.
Don’t forget to review your business model and your revenue strategy and how your renovation and remodel fits into the tenant experience and what will help you attract the right tenants.
Further reading: Apartment Renovation | Rental Property Accounting | Property Maintenance Management | Hire Property Maintenance Service | Interest Rates | Moving Companies | How to Rent Your House | Property Management Company | Tax Strategies | Houses for Rent | Property Management | Rental House Advertising | German Rental Housing | US Rental Housing