Can renovations considerably increase the rent?

Step one:  Conducting a property review

There are three types of renovations on a rental:  what needs to be done; what would be nice to do; and what will deliver increased capital value/ROI.

The first step Point Property will take to review your property renovations is takes into account three key considerations: who your key tenants or prospective tenants are (and what the opportunities are), what the limits are, and what your desired properties and portfolio goals are.

Renovation consideration #1:  Who are your potential tenants and what do they want?

Your target tenants will in part be defined by the features of your property and its location. Different properties and areas appeal more to some groups than others.

For example, if you have a family-sized home in a quiet area with nearby schools, then the natural target tenant for your property is a family. Of course, this does not restrict you to only families, but it makes families the most likely tenants to respond.

This consideration is relevant not only in the marketing of your property for new tenants – but it’s also important to factor in when considering how/what to renovate.

Tenant groups & what they look for

Families Working couples Students/Group flat situations Retirees/Singles
·  3+ Bedrooms

·  Large bathroom – full bath

·  Large enclosed or fenced section

·  Close to schools·  Quiet streets

·  Robust interiors

·  Ability to have pets

·  Lots of storage space

·   2+ Bedrooms

·   Low maintenance section

·   Close to city/transport links

·   Attractive living areas

·   Off-street parking

·   Attractive/modern interiors

·   3+ Bedrooms·   More than 1 bathroom/toilet

·   Low maintenance section

·   Large living area

·   Outdoor entertaining

·   Close to transport links/shops

·   Robust interiors

·    1+ Bedrooms

·    Attractive interiors

·    Off-street parking

·    Small section/garden

·    Security

·    Ability to have pets

·    Quiet streets

When you factor in who your target tenants might be, what to renovate becomes clearer. By providing a carport on a property with little on-street parking in a central city location, you immediately add value which a working couple would happily pay for. By fully fencing the section on your family-sized property, you add value to families with young children. And so on!

 

Renovation consideration #2:  Factor in the risks and limitations

Over-capitalization: Renovations need to be balanced by the market limits on your area. It’s very important NOT to overcapitalize – not to improve your property beyond its resale value. We take into account the values of the surrounding area to guide this.

Future proofing: We consider what may potentially affect your investment – such as re-zoning, nearby development or roading changes.

Timing: Renovations can take a lot longer than planned – and every day untenanted costs you money. Planning around tenant occupancy is vital.

Budget: One of the keys to achieving a good return on investment is a tight budget – but it also needs to be reasonable! Beware of false economies – you may think you can save money by doing some renovations yourself – but often it’s more economical (and quicker) to pay for a professional.

Consent issues: For timing and budget planning – we factor in what consents you may need. For example, if you build a deck, be aware that if it’s under 1.5m from ground level, you don’t need a building consent – so you can save time and money by building a patio lower to the ground – but achieve the same outdoor living space.

 

Renovation Consideration #3: Your property portfolio and plans

The final consideration – but by no means the least – is what your goals are. Why do you have an investment property, and what do you want out of it? Consider these questions:

·        How long do you intend to hold on to the property for?

·        What are your plans for the property? (Do you intend to move into it yourself at some stage?)

·        Would you like to leverage and expand your property portfolio?

·        What return are you looking for from your investments and over what time period?

·        Would it be better to use your capital expenditure elsewhere for even greater return (syndications)?

In other words, you may have the opportunity, the time and the money to increase your investment in this property – but do you have the inclination? Or would it be better to keep the property well maintained – but focus additional investment elsewhere?

 

Step two:  Renovation recommendations

What’s essential?

• To meet compliance with code and RTA legislation
• To ensure health and safety of tenants
• To prevent foreseeable future higher maintenance issues

There have been significant changes to legislation regarding the required standards for rental housing – and the courts are proving to be highly punitive of non-compliance. In addition, your insurance cover can also be affected. Point Property Management ensures all of the properties we manage are within the guidelines of the new code.

In addition, our Property Managers will highlight any maintenance issues which if corrected today can prevent larger issues and costs in the future – so these are essential for maintaining the value of your property.

What’s nice to do?

• Refined landscaping/gardening/water features
• Detailed interior finishes
• Replacing colour schemes for preference

Our primary focus is always your bottom line: so we will not advise you on any unnecessary renovations or maintenance that won’t be financially beneficial. For example, a feature wall or a new colour scheme may be an improvement to a property – but not one which will gain any increased revenue for you.  So, while it’s your property to do with as you please – your Point Property Manager will only advise you on what will help your bottom line.

In many cases, having a Property Manager’s independent perspective on what’s needed and what’s not is essential – as a contractor is very unlikely to say no!

What’s going to increase your ROI?

• Creating more space/extra bedrooms
• Higher valued features such as parking
• Potential development/subdivision

There are both large and small renovations that can result in increasing the long-term capital value of your property – and the short-term rental return.

Point Property’s Yield & Capital Growth Plans are unique in providing owners with comprehensive recommendations on worthwhile renovations – as well as the ability to plan and manage these renovations on your behalf.

 

Talk to your property manager about options on your portfolio – or if you aren’t currently a Point client, get in touch!

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