Working in property management at Atlas Real Estate, I am frequently asked to weigh-in on investment property renovations as a means to increase rents. My colleagues and I like being able to offer experience-based insights on this important topic, so I’ll share a few of mine.
Assuming that your goal is to increase revenue on your rental property over time, there are a few things you will need to carefully consider to achieve it.
First, know your real estate market before starting your renovation. It is crucial to understand market dynamics and the nature of the neighborhood/locale in which your rental is located. Is your investment rental in a market with high-end rentals or is it in a market with low-end rentals? Understanding what the market will bear in terms of rents will greatly affect renovation decision-making. For instance, it would be unwise to invest $25K into rental upgrades that only yield a $100 monthly rate increase. All too often I see owners throw money at a rental property based on their belief that, “If I make the house really nice, I can increase rents significantly.” This is a costly assumption to make and it usually leads to disappointment and dashed expectations.
Second, do not allow yourself to be overly influenced by your own taste, style and expectations in homes. While it is sensible to upgrade a rental property to meet modern standards, do not get caught up in renovating it to the standard of your own home. Unlike you, your renters will not have a vested interest in the home; therefore, it is unlikely they will care for it the way you would. Bottom line: you will be over investing.
Third, determine which items will actually result in rent growth. Each home differs in terms of needs, but generally speaking, there are key areas to focus on. The spaces where residents spend the most time are the kitchen/living space and bathrooms. Focusing your updates on these areas helps to keep cost down while still providing a good return on investment. Installing granite countertops is not a good investment when less costly materials can offer the same return. Replacing old appliances with updated stainless steel is a way to increase rents with minimal cost. Additionally, the type of renovation finishes used should be in keeping with finishes used in neighboring homes. Always ask yourself, “What looks good yet keeps cost down?” Reasonably priced renovation options abound, so take time to investigate them.
Last but not least, when your renovation is complete, present your home in the most appealing manner possible. Professional photos grab attention, show your rental in the best light, and even make lower-end finishes look attractive. If you want to fill your rental quickly at your desired rate, spending a little extra on a photographer is worth the investment.
In sum, a calculated, educated approach to rental property renovations is essential to helping you reach your rent growth goals.
by Alyssa Bieling, Atlas AZ