We are often asked the question, is it worth renovating a rental property based on the return and the risk of damage caused by the tenant, so we thought we would share our view on this.
Experienced investors often buy properties that require only cosmetic changes to generate higher rents. Minor details such as installing new curtains, repainting or simply updating the knobs on kitchen cupboard doors can work wonders when it comes to maximising the return on a well-chosen investment.
Tenants don't view their homes any differently to property owners. They regard the kitchen as the heart of any living space and prefer one that also looks reasonably up to date. Undercapitalising a unit or house is as big a mistake as overcapitalising. People don't want to rent poorly presented and outdated properties.
Before renovating any investment property, it pays to quiz an experienced property manager about what features tenants look for most. For investors, the biggest worry is determining the full cost of a renovation. You also want the work to be finished as soon as possible. If you're not handy, it can make sense to outsource the entire job at a fixed price. Whether you “do it yourself” or engage contractors for the job, it's so important to have and monitor a budget. Your purchase price and renovations should be balanced so that the return is maintained. Ideally the return should not fall below 5% otherwise your money is probably better left in the bank earning interest without the risk.
There are plenty of ways to cut costs. It's often possible to keep the existing bath and limit spending to re-tiling, taps and fittings and perhaps a new vanity when renovating a bathroom. Similarly, old kitchen cupboards are often structurally sound so sometimes just paint and some new handles will do the job or perhaps a new top.
Quality renters now demand a great place to entertain (a modern kitchen) and they like the open plan feel so that they are connected with the visitors while preparing a meal. Outdoor entertaining is also high on the must have list for renters be it a courtyard, deck or undercover gazebo.
The property should also be meticulously clean before it is offered for rent. The number one complaint most tenants make is that the properties they view with some agencies or landlords are dirty and smelly. You should ask yourself, what type of tenant would apply for a property that is unclean and smells?
In Tasmania, the most important consideration is that the property needs to offer an efficient and affordable heating solution, ideally a heat pump which provides both heating and cooling.
In a nutshell… don’t over capitalise and be conscious that you will attract the tenant you deserve. Make sure the property is clean, presents well externally and offers the things that great tenants look for in a home.
