When considering renovating an investment property, investors must always keep in mind what benefits they can realistically to achieve from such an undertaking. Whether it’s attracting new tenants, keeping current ones satisfied, or reducing vacancy rates and turnover, the goal is to add value to your property that can be realized with a greater return on investment.
Is Your Investment Property Due for a Renovation?
Assuming your property is being properly maintained, it’s important to examine why you want to renovate. Is it because you feel the finishes and fixtures are not to your personal taste? Are tenants contacting you requesting updates or improvements? Or are you concerned that a high vacancy rate is a result of prospective tenants being turned off by the condition of the units?
While structural renovations immediately required to ensure the property is habitable and safe should be completed as soon as possible, other improvements warrant careful consideration. If your investment property is well maintained, kept neat and tidy, and vacancy and tenant turnover rates are at or below norm, renovations are likely unnecessary.
While investors will often compare their property with their own owner-occupier, it’s important to remember that property investment is a business, and improvements should be approached through a financial lens. Modernizing must allow a rent increase to pay for the capital costs.
However, there will come a time where the fixtures and fittings are at the end of their usable life, and the property is will start to look tired. This is when you will need to start planning the renovation process. And to make the most of your renovation dollars, you must find the balance between what will benefit the renter and you, the property owner.
Most major unit renovations can occur over a period of time and don’t need to be done all at once. Make sure to discuss this plan with your Property Management company if you want to ensure you are upgrading units as they come vacant over a 10-year period. This method will allow for the property to continuously be improved while spreading out the costs over time. Waiting to do a major renovation project for the entire building all at once is a huge cost and may not be the best strategy for you.
Free Renovation Checklist
To help with this, we’ve prepared a renovation checklist with useful tips for property owners on how to effectively update properties to attract quality tenants
For example, did you know that two-bedroom units need a larger fridge? Or that replacing carpet with a quality laminate flooring will save you time and money?
You can download the free Renovation Checklist here
Understand Your Market and Plan for Success with the Help of your Property Management Team
When considering a renovation, the first thing you should do is to speak with your Property Manager. They have a good understanding of the level of demand in your marketplace, and if your property is meeting that demand. They will also be able to provide you with additional insight into what the local market will support in terms of monthly rent.
This is important, because if you improve the property to a standard beyond what the market can support, it is unlikely you ever see a return on your renovation dollars as you will not be able to raise rent prices high enough to recoup the cost of improvements.
An experienced property management team an provide you with insights on the success of other recent renovations in your submarket and which amenities and unit features are pushing rents and increasing returns. They will also be able to provide you with projections on long-term location trends to see if your markets can sustain rent growth.
Related Blog: Why Renovating Your Income Property in a Tough Economy is Smart Business
With larger properties, your investment goals and timeline will also impact your renovation plans – and while we at Braden Equities Inc. encourage investing for the long-term to maximize your ROI, we know that shorter-term holds will need to limit the number of units they renovate in a property to keep cash flow positive.
Other challenges surrounding renovations include how to schedule and complete work in occupied suites, whether to start with the common areas or the units, and how to deal with hazardous materials in older buildings, including asbestos-containing material in drywall, floor tile and tile mastic.
These are some of the areas in which the experience and knowledge of a professional property management company can prove very useful to investment property owners.
If you are concerned about the performance of your Edmonton-area multi-family property and are considering renovations, it’s important to have a good understanding of the costs and potential returns of what could be a considerable financial commitment on your part.
With over 40 years in business, Braden Equities Inc. has a proven track record of helping Multi-Family Property owners make the most of their assets by employing proven strategies to improve performance and ROI – including renovations. We’d be happy to meet with you to discuss your situation!