Renovating a rental property may on the face of it seem of little benefit, particularly if you have a good tenant in the property and they pay their rent on time. However making improvements can really pay off in the long run:
You can attract a better quality of tenant with a nicer property
Doing up the kitchen or bathroom, re-carpeting or painting are not insignificant expenses, but ultimately you will be able to justify a higher rent that will increase your cashflow month to month. A tenant who is prepared to pay a higher rent is more likely to look after the property and is less likely to default on rent payments (although there are never guarantees with anyone).
Any improvements you make to the property are regarded as a taxable expense, so could pay dividends at tax time. Remember to keep all your receipts!
Adds value to the property at sale time
We've all been house-hunting and seen properties that have been let out for many years that are often a bit tired, outdated and consequently don’t attract top dollar. In most cases the real money you make on your investment property will come from the sale, not the rental income, so renovations are certainly worthwhile.
So what’s the best way to go about organising your renovation?
The first hurdle is getting access to the property if there is a tenant already living there, which is the main reason that landlords choose not to invest in renovations. If you are planning to undertake renovations while the tenant is in place, you will need to compensate them for the inconvenience, which adds more expense to the cost of the cost of renovating. And if the tenant will have to move out for a period of time, then you should assist them in finding alternative accommodation.
The ideal time for renovations is during a gap in the tenancy. Yes, it means a loss of rental income for a short period of time, but any rent increases you were planning could have driven out an ongoing tenant anyway. This way you don’t have to compensate a tenant and it gives tradespeople easy access to do the renovations while the property is empty. Once the renovations are complete, it’s a great idea to invest in some new photography to advertise your improved property to attract your next tenants.
Thinking about renovating your investment property?
If you are planning renovations for your rental property it’s important to talk to your property manager and seek their advice on how much you could increase the rent. A good property manager will also be able to advise on what most tenants are prepared to pay a little extra for. They will also guide you on your responsibilities in terms of notifying tenants and planning ahead.