Should I Renovate My Rental Property?

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As a property investor, from time to time you’ve probably asked yourself, “should I renovate my rental property?”. While you want to keep your investment well maintained and looking its best, you also want to avoid unnecessary costs. As such, it can be hard to work out whether proactively making even relatively minor updates is actually worth it.

Here we share our thoughts on this decision and the pros and cons of renovating a rental property. We also provide our advice on where to focus your renovation budget if you do decide to update your property.

Why should I renovate my rental property?

To put it simply, an updated rental property will be more attractive to tenants. As such, it should attract more interest when advertised for lease, including from higher-quality applicants. This means the risk of the property sitting vacant, or there being problems during the lease, is likely to be lower.

When carefully planned and done well, renovations can also make a rental property more valuable to tenants. This means that you can increase the amount of rent you charge, and tenants will be willing to pay it. It also means renovations have the potential to increase the income you receive from your rental property.

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What’s more, the right renovations can also help boost capital growth, further increasing the property’s market value. This, in turn, should increase your equity in the property, which you can leverage to grow your investment portfolio. Though, depending on your financial situation, this could be partially offset by the cost of the renovations.

Updating your property could even reduce your ongoing maintenance costs. By replacing damaged, worn, and ageing fixtures and fittings, you reduce the risk of issues and further damage. You also reduce the need for ongoing maintenance, just to keep the property in its current condition.

Tip – it can be a good idea to set up a separate bank account for renovation and repairs and put money aside from time to time. This will make it easier to come up with the money for any improvements.

Why wouldn’t I renovate my rental property?

While renovations can increase your returns in the long term, they will cost you money in the short term. This can have a big impact on your rental returns and really undermine your investment strategy.

This is largely because it can take quite a while to recover the money you spend on your renovations. For example, even something fairly simple, like installing air conditioning, can cost up to $5,000. To make this back, your rental property would have to bring in $50 a week more, for almost two years.

You also need to consider the state of the market when planning any renovations works. If the rental market is declining, it may be harder to find a new tenant as vacancy rates increase. While updated properties perform better in a slower market, many tenants won’t consider an older property, even if it’s updated.

If the market is slow, you may also need to discount the rental rate to secure a tenant. Once again, updating your property should help protect you against this, though it’s unlikely your rental rate would increase much. This means it will take a lot longer for you to recover your renovation costs and start seeing a return.

Even if the market is strong, choosing to renovate your rental property could mean leaving it vacant for a while. Although it’s possible to do some work with a tenant in place, most renovations are easier to complete between tenancies.

This means you need to wait for your current tenant to leave and keep the property empty during renovation works. Then once everything is complete, you’ll need to re-advertise the property, showing off the recent improvements. Depending on what you’re having done, this could see your property sitting vacant, earning no income, for a few months.

How should I renovate my rental property?

When renovating a rental property, it’s critical you keep tight control of your budget. This means being quite strategic with your spending and carefully choosing which updates to make. It also means making sure that the work you choose to do will actually increase the property’s rental appeal.

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With this in mind, if you’re thinking about renovating your rental property, these are the updates we suggest you consider:

  • Repainting: This is the quickest and easiest way to refresh a rental property, particularly if it’s showing signs of wear. It’s also one of the more cost-effective updates you can make and something you can do yourself. Just make sure you stick to neutral colours as these will have the broadest appeal and work with every style.
  • Upgrading the kitchen: Unless it’s in an really average condition, a full kitchen renovation usually won’t be worth the money. However, updating some of the fixtures and fittings (benchtops, cupboards doors, etc.) will refresh the space, making it much more appealing. As part of this, consider installing a dishwasher (if there isn’t already one), as this is something renters now expect.
  • Updating the bathroom: Much like the kitchen, unless a bathroom is not in good condition, a full renovation probably won’t be worth it. However, simply replacing the toilet, vanity and shower screen, and upgrading the tapware, can make a bathroom look like new. And while completely retiling the space would be wasted cost, any cracked or broken tiles should be replaced.
  • Installing air conditioning: This will be a bigger investment, but many renters won’t even consider a place without heating and cooling. While some will accept a fan, this will usually only be as a trade off (e.g. for a great location). Instead, opt for a split system as it’s relatively cheap and easy to install, and will meet most tenants’ requirements.
  • Adding a study area: Today most renters spend more time working from home, so having a dedicated study area is high on a renters list. You might be able to arrange for a custom-made benchtop to be built into a space in the hallway or next to a fireplace or under the stairs or somewhere else within the place.
  • Installing laundry facilities: Most renters prefer not to use common areas for doing their laundry. You might be able to look at installing facilities in the bathroom or kitchen.

Want to discuss this further?

If you still aren’t sure whether you should renovate your rental property, give Local Agency Co. a call. We are property management experts and can help you decide the best course of action for you and your property. We can also help you plan your renovation works to make sure you get the best possible return on investment.

CLICK HERE TO SPEAK WITH AN EXPERIENCED LOCAL PROPERTY MANAGER

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