Should You Renovate Your Investment Property?
A savvy investor is always looking for ways to increase the value of their portfolio and maximise their income. One strategy commonly employed by property investors is a home renovation to increase rental returns or improve the capital value of the property. Even though this is usually a smart move, you need to explore the risks as well as the benefits before embarking on a potentially costly project.
The Benefits of Renovating an Investment Property
- Increases the value of your investment portfolio
- Increases demand for the property
- Enables you to charge higher rent, thus creating higher rental returns
- Added appeal to prospective buyers
- Can modernise an older property
- Can incorporate sustainable building practices
- Can integrate smart home technology
Things to Consider Before Renovating an Investment PropertyProperty renovation can be costly and labour-intensive. Even minor projects such as replacing a carpet or painting a wall take time to complete – and if you’re carrying out renovations between tenants, your property won’t be generating any income while the renovations are taking place. When it comes to an investment property, it’s even more important that you stick to a budget so that you don’t end up spending more than you initially anticipated – as this could easily negate any capital growth or rental return gains. It’s important to factor in regular maintenance costs and repairs, too. Also take into account the risk that property values could suffer a downturn. If you fail to follow market trends, the renovated property you bought may end up being worth less than what you invested.
Property Assessment Prior to RenovationBefore starting, you need to determine whether a home renovation will be a profitable endeavour, especially if it’s more than a simple cosmetic renovation. This first means assessing the current state of the property.
- What is the age of the building?
- Are there any visible signs of wear and tear?
- Does it abide by the relevant building codes?