Renovate your investment property for profit
A make-over for your investment property can instantly increase your rental return and increase your property’s value; when done right. If you want to renovate your investment property for profit it is important that you understand your target market, set your budget, prioritise and think strategically. Read on to learn about these key factors to renovate your investment property for profit.
The most important thing when renovating your investment property is to understand your future clients. Tenants and buyers alike are the target market of property investors. Key to a successful investment is to understand what your potential buyer or tenant does want. Who is going to rent your property? Students? Families? Retirees? What do they want from their home? Are they going to entertain in the kitchen? Or do they need extra storage for all the family gear? Do they need an extra bathroom or would an office be more attractive to your tenants?
Once you know who is going to rent or buy your property you know what to focus on with your renovations. If you target your potential buyers or tenants with your make-over, you will ensure to have the most people interested and you will also be able to charge the highest rent or sale price.
Cost efficiency is key
When you renovate your own home, you do it to make it prettier, because your taste has changed or maybe simply because you want to and you can. Different with an investment property: A make-over only makes sense if it is profitable. Who would renovate a rental to gain $5/week? That is why cost efficiency is key. Don’t splash out on luxury items when the standard version achieves the same result. Your focus is to attract more buyers, more tenants, more rent or a higher sales price – not to win the next season of The Block.
So with the maximum profit in mind, how much should you spend? While many people start with the end result: what does a kitchen cost? How much do I need to spend? If you are renovating your rental for profit your budget depends on your property value. The rule of thumb is to not spend more than 7% of the current value. So if your rental is worth $400,000. You should set the limit to $28,000 for a make-over.
Return of investment
Property investors do aim for two things: increase the property value and increase the rental yield at the same time. Speaking numbers, they aim for a return on investment of ideally 20%. When investing $28,000, they would aim to increase the property value by roughly $55,000 and achieve and a rental increase of about $160 increase per fortnight.
With roughly $30,000 to spend, you need to prioritise your renovations. 30% of your renovations should be invested in improving the kitchen and bathrooms. For a standard 3×2 that results in around $10,000 to renovate kitchen and bathrooms. This leaves the remaining $20,000 for renovating the rest of the house and improving the street appeal.
Thinking strategically means to choose value over luxury. Ignore your personal taste and choose mainstream. Choose neutral colours; whites, greys and cream and a timeless style that will appeal to most buyers and tenants. Classic designs and tones also stand the test of time, ensuring you don’t need to renovate again in five years’ time.
Think kitchen and bathroom first
The kitchen is the heart of the house. To update the kitchen is the single most profitable investment you can make when renovating your rental. A renovated kitchen and bathroom instantly add real value to your investment property. The next steps are a fresh coat of paint and to add new flooring to the property. Now that you have the budget and priorities of your make-over for investment properties, let’s look at how to maximise the profit.
Don’t throw out the good with the bad
Salvage what you can. Don’t throw out the good with the bad. Example needed? The kitchen is the heart of every house. If it is dated and faded it will be a no-no for buyers and tenants alike. However instead of replacing the entire kitchen with a brand-new one, give it a make-over. Throw out the dated and faded doors and drawer fronts, but keep the fully functioning cabinets. For $4000 (on average) you made an old-fashioned kitchen look brand-new.
DIY – wherever you can
If you have 20 to 50 investment properties or even more, skip this paragraph. But if you only have one or a few rentals, read on. Do it yourself; wherever you can. Yes, you have your real estate agent, who is looking after your property. But have you ever looked at your monthly account statement? Do you really want to pay $150 to change a couple of light bulbs? Is it worth $600 to replace a letterbox? The customer service easily adds up. Worse it eats up your profit.
Expensive Real-Estate Agents fees
When renovating your rental Real Estate agents are really expensive. Not only don’t they hunt for the cheapest price, but worse: They add their margin to everything. So instead of finding the best price for an item, you will pay the standard price of the agent’s supplier, plus the agent’s mark-up, plus the fee for the agent’s maintenance guy to do the job. Every plus in the agency’s pockets reduces your profit. So think twice before you hire them to oversee the make-over of your investment property.
Ready to go? Give us a call to learn how we can help you save big bucks when you renovate your investment property for profit. Want to know, how much the DIY difference is in a kitchen renovation? Stay tuned for our next article Kitchen Renovation for profit – Skip the Real Estate Agent.