Should You Renovate Your Rental Unit? Cost Versus Return on Investment (ROI)
Advice for property owners from Appfolio's Aimee Miller.
It is the job of property management companies to minimize the cost of maintenance and repairs through the use of a choice network of vendors and periodic and timely maintenance updates. Still, they also know when it is time for major renovation and remodeling. Making correct recommendations to their investors as to what projects to do and how far to take the transformation requires thoughtful consideration. Beyond the immediate or long-term potential return on investment (ROI), other solid reasons to renovate rental units include
- Maintaining the integrity of the property with necessary repairs/replacements
- Making improvements to attract better-qualified residents
- Amortizing costs with intent to sell
- Gaining tax advantages and credits
Determining which rental property renovation projects will offer the greatest benefits will depend on whether you plan to sell or continue to rent, so let’s cover some facets of both possibilities and what renovations renters and buyers consider most essential.
5 Desirable and Cost Effective Renovations
Buyers and renters typically have the same wants in a home, but a few highly sought-after improvements also offer a substantial ROI for investors.
- Thorough Cleaning – The cheapest and simplest way to boost a unit’s appeal is to clean the interior thoroughly. Don’t forget the exterior either: Consider pressure washing the exteriors.
- Interior and Exterior Paint – Interior paint can mask small flaws and make most surfaces look brand new again, and exterior paint boosts curb appeal.
- Flooring – Flooring can be luxurious and cost-effective with newer laminates on the market. Choosing one that matches your desired demographic and suits your unit will likely pay off quickly.
- Kitchen and Bath Remodeling – According to Realtor.com, kitchen and bath remodels offer nearly an 85% ROI, making them sound investments whether renting or selling. Units can benefit substantially even with small improvements like resurfacing showers, tubs, and countertops or refinishing cabinets as opposed to complete replacement.
- Windows and Doors – Doors are far less expensive than windows but are just as essential to home safety and keeping the elements out. Sagging windows and doors are just plain unattractive, and both renters and buyers are turned off.
Call in the Pros for Renovation Advice
Investors should consult with an expert who can evaluate their property’s current condition and make an educated estimate of what the ROI will be for each renovation under consideration. This is called a Comparative Market Analysis, or CMA, and a qualified property management company or other real estate professional or appraiser can perform this analysis and offer investors estimates on their return, whether selling or renting is the plan. These experts can also offer a time frame for how long it will take to recompense the investment, and realtors can further assist investors in determining which improvements can help attract the right kind of residents or fit in with the neighborhood “vibe.”
Things to Consider Before Renovating Rental Properties
Remember, scaled renovations and remodeling can increase equity and help investors maintain a top-tier resident base, so don’t go overboard with projects. Remodeling costs will typically have to be depreciated, not deducted. Investors will also want to time renovations to occur during the off-season or while the unit is vacant unless offering big rental discounts is on the agenda.
Last, but certainly not least, renovations for rental units should be performed by a professional, not by a general handyman or through a DIY project. Subpar work is likely to only cost more money and cause additional headaches down the line, so work with top-quality local contractors to assist with rental property renovations and improvements.
Source: Aimee Miller at http://www.appfolio.com/blog/author/aimee-miller/