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3 Questions to Ask Yourself Before Renovating
3 Questions to Ask Yourself Before Renovating
Determining when the time has come to do renovations on your rental property is a process that requires good judgment and a careful analysis of your goals. Depending upon your situation, renovation time may occur before you ever even move tenants into your property or, alternatively, it may be one of the final things you do before selling your investment property. Following are a few key questions to consider when contemplating a renovation.
Would I want to live here myself?
While you don’t have to outfit every rental you manage like a luxury penthouse complete with every amenity imaginable, it is important to make your rental units as comfortable and livable as possible for tenants. Upon purchasing a rental property (and every few years thereafter), look around your rental unit and ask yourself: Is this somewhere I would want to live? If the answer is no, it’s time to start taking a serious look around at what features could stand changes or improvements. The better condition your rental units are in, the more quality tenants you will attract. And the better quality tenants you attract, the better care they will take of your units. Good tenants are a key element to consistently maintaining the value of your rental property.
How do I stack up with the competition?
If you are looking to sell your investment property at any point in the near future, you should make yourself familiar with comparable properties in your area. In real estate, sale prices are determined in large part by “comps”—properties that are similar to yours in terms of size, location, and amenities. Knowing what value these comps command will give you a good idea of where you stand. Let’s say, for example, that a comparable property in your neighborhood recently sold for your target sales price. Take a careful look at that property and then realistically compare it to your own, asking yourself how you stack up. Remember, this involves more than just a comparable number of bedrooms and baths. If, for example, the comp property features units with renovated kitchens, while yours does not, and all other factors are fairly equal, chances are your property will command less on the sales market. In order to meet the competition and bring up your price, it may be time to consider renovations to your units’ kitchens to bring them up to the competition’s level.
What is the cost/benefit ratio of renovations?
With the previous scenario in mind, though, remember that it’s important to consider cost/benefit ratios when it comes to renovations. To determine this, speaking with both a trusted contractor and real estate professional is recommended. Let’s say, for example, that you speak with a contractor about potentially renovating the kitchens in all of your rental units and learn that this will cost approximately $35,000 total. You then speak with a real estate agent who determines that updating the kitchens in the rental units will bolster the property’s overall sales price by approximately $37,000. Is this cost/benefit ratio worth it in the long run or is it best to go with the lowered projected sales price your property currently demands? Consider such questions carefully before embarking on renovations.
Every landlord wants their rental property to be in the best shape possible at all times. But before embarking on a costly renovation, it’s important to consider your goals, the market, and the expected financial impact of any given renovation.
