Refurbishing property to rent it out can be a great way to add value to your property. However, it is important to note that purchasing a home in disrepair with the intent of refurbishing it to increase the value can backfire if the cost of refurbishment is significantly higher than the value you earn. This can be a good investment if you understand what you’re doing and know how to make cost effective refurbishment decisions, but it isn’t a good decision for the majority of property investors.
Instead, this article is focused on guiding you through making small refurbishments to your existing rentals to increase the value so that you can raise the rent proportionally to earn value on your investment.
What Adds Value to Property?
While it can be tempting to spend a lot of money on a property to make it perfect, this rarely pays off for the investor. Unless you’re refurbishing a high value home that will rent or sell for significantly more than you purchased it for, you will lose money, or your investment might not pay off for ten or more years. Instead, you should focus on making small, cost effective changes that pay off quickly, but add the most value to your apartment.
For this reason, you may have to calculate your refurbishments on an individual basis. For example, if your property has old carpet in it, you can increase the value by stripping it out and adding hardwood. This is a relatively small investment that will greatly increase the desirability of your unit and should pay itself off within a year. On the other hand, if your unit requires a brand new kitchen, which will cost you $25,000, and you can only raise the rent $400 per month after the investment, your investment won’t pay itself off for almost five years.
Not all tenants are looking for a pre-furnished home, especially if you’re renting to families. However, first time renters moving out of college and into careers are definitely looking for furnished apartments. For this reason, you can consider furnishing your apartments if you’re renting to a younger demographic, own property in a city center, or near a university or college. Another consideration is that because most furnished apartments rent to millennials, you should consider using contemporary furniture and designs.
How much does furnishing your apartment pay off? By relieving your tenant of the need to purchase couches, chairs, or a washer and dryer, you can add as much as 30% to the cost of the rent. However, you shouldn’t charge more than other similarly equipped units in your area. Equipping a unit with $4,000 of furnishing could allow you to add $200-$400 to your rent, which will pay off within a year, after which you earn a return every month.
A mid-size TV, couches, beds, tables, refrigerator, washing machine and dryer (if the apartment does not include a separate laundry room), and a wardrobe or dresser are essential items for a furnished apartment.
No one wants to rent a home in disrepair and small cosmetic changes can add a lot of value to your home. Examples include replacing old floorboards, swapping out old door handles for new ones, painting dirty or off color walls, landscaping, replacing rusty or dirty sinks and toilets, and fixing up areas that are typically in disrepair, such as closets, basements, and attics, can add a lot of value and appeal to your home. Most importantly, some of these changes come in at less than $100. Do they add to the value of your property? Not really, but tenants will be much more likely to pay your asking price if everything is in good repair.
Kitchen and Bathroom
The condition of the kitchen and bathroom greatly affect your renter’s decision and how much they are willing to pay for the rental. For this reason, investments in these areas can go a long way towards increasing your rent and the demand value of your property.
While some factors, such as popular design trends, change quickly, you can attempt to use modern, stylish, but simple designs that work with most trends. Some ideas include:
- Replacing old tile in the bathroom and kitchen with new, neutral tile in an easy to clean shade such as grey, light blue, or an eggshell white.
- Replacing old sinks with new ones and using modern faucets
- Replacing countertop with new, neutral colors.
- Stripping out old fashioned bathtubs and replacing them with closed showers or bathtubs with showers.
- Creating plenty of storage areas, while leaving as much open space as possible
Remodeling a kitchen can cost as much as $30,000 but you don’t have to replace everything. Making cost effective design decisions, like replacing linoleum with tile, replacing cabinet doors, and replacing the sink can change the entire look of a kitchen but are surprisingly affordable.
Similarly, bathrooms can cost a great deal if you simply strip the room and start over. Instead, identify the room’s biggest weaknesses and fix those. If the toilet is old, replace it. If you have a bathtub instead of a shower, replace it. If the walls are dirty or show signs of water damage, have the problem fixed and install tile to prevent it from happening again. Small changes, like installing a shower, can cost you less than $1,000 including labor, and can greatly increase the demand of your apartment.
Investing in your property is crucial to ensuring that it continues to add value over time, and that you are getting the most out of your property. Just make sure that you calculate the returns on your investment and don’t spend more than you can afford, or more than you can pay off in 5 years.
Do you need help managing your property investments? Contact SJA Property Management for a free quote on your rentals.