Investors often ask when the best time is to renovate their properties. Experience tells us that the best time to renovate is when the property is vacant. However, some renovations can be done with tenants still in the property.
There are compelling reasons to renovate an investment property. For example, a renovation undertaken during a tenancy might encourage a tenant to enter a longer-term lease, possibly at an increased rent. These works could be as simple as the installation of built-in wardrobes, upgrading bathroom tiling and shower/bath recess, painting, installing new window coverings, re-carpeting or installing new appliances. However, when considering any work on the property, we stress that it is unwise to over capitalise by installing top-of-the-range products. This is a mistake that many investors make. Top of the range costs considerably more than acceptable alternatives and don’t necessarily add rental value.
It’s important to consider what type of renovations will increase the rental value and what tenants actually want. By understanding what renters are looking for and tailoring the renovations to market expectations, the investor will stand a good chance of generating more income from the property.
Lastly, investors should keep all records and invoices, and speak to their accountants about the tax implications of any renovation work that they undertake and consider obtaining a tax depreciation report so their renovations can be depreciated for tax purposes.
Ultimately, whether or not investors should renovate their properties depends on the cost of renovation, the rental return on investment (ROI), repairs and maintenance costs, the resale value of the property, and the current state of the real estate market. The truth is that there are no guarantees when it comes to renovating a property; if investors want the most return on their investment, they’ll need to do some calculations before diving in headfirst.