Renovating a rental property is very different from remodeling your home. When renovating a home, you have an emotional attachment to it, so the bottom line is to make it look and feel as good as possible.
But renovating a rental property has nothing to do with emotions: it’s all about maximizing your returns. That being said, every rental renovation decision you make needs to be economically sound. If it doesn’t add value to your rental property, increase your ROI and lower your liabilities, it’s probably not worth the money and time.
This post covers the top five do’s and don’ts to consider when remodeling your rental property investment.
Don’t Go With Cheap Materials
This is one of the biggest mistakes homeowners make when remodeling rental properties. You may think you’ve scored by going for seemingly good-looking cheap materials, especially if you’re just getting started on your first rental property.
But lesser-priced building materials aren’t always inexpensive in the long term. This is especially true if these materials are to be used in high-traffic areas of the property.
Take the floorings, for instance. It’s easy to save tons of money upfront by going with inexpensive floors. But while they may look good for the first few months, cheap floors are not engineered for durability. In other words, you’ll probably need to replace them sooner with durable floors.
We are not suggesting going with the most luxurious and high-end materials for your average rental property. What we’re advocating is the need to balance cost and durability. Spending an extra dollar on better and more durable materials saves you money and increases your property’s rentability. Also, remember that your potential tenants are likely to respect and take care of their ‘home’ if they take pride in the quality of materials used.
Do Hire the Right Contractors
Home renovations can be expensive depending on your property size and the work needed. It’s tempting to tackle some of the tasks yourself. But the risks involved are often not worth it. Additionally, renovations take time and require advanced tools, both of which you probably don’t have.
On the other hand, there are plenty of good reasons for adding professional remodeling contractors to your team. They will be your go-to source for everything from designs and ideas to obtaining the necessary permits.
Most contractor companies also provide a warranty in a satisfaction guarantee. That’s to say that the company will provide any additional correctional services if expectations are not met.
When hiring contractors for your rental renovations, you want an individual or a company that offers quality services within a reasonable timeframe and at a good price. Importantly, ensure that the contractor is licensed, bonded and insured. This minimizes your liabilities in case of workplace injuries and gives you a way to hold them accountable if they do a lousy job or try ripping you off.
Don’t Scrimmage on Landlord Insurance
There are various ways of reducing your rental’s operating expenses to maximize cash flow. But going without landlord insurance is never a good idea.
You’re not legally obligated to purchase landlord insurance. But in case something bad happens, the financial implications will definitely be way higher than what you’d save from not paying monthly insurance premiums.
Like other insurance covers, you won’t need your landlord insurance until you do. Mother Nature is not always too sweet. There’s no predicting what she’ll throw your way, from wildfires to storms and floods. Having the right insurance cover gives you peace of mind in case of damages and loss of rent resulting from these events.
Water damage is another reason landlord insurance is a must-have for rental property owners. And don’t forget about your legal liabilities in case someone suffers property damage or loss on your rental property.
There are different types of landlord insurance policies covering various risks. It pays to review the Product Disclosure Statement (PDS) to understand things, such as insured events, exclusions, claim limits and how to make a claim.
Focus on Renovations that Increase Value
When remodeling rental properties, a piece of age-old advice is to distance yourself from trends and focus on changes that add value. Striking a balance between renovations that keep your rentals updated while giving you a great return on investment is a talent that successful landlords possess.
Most potential tenants place a lot of weight on the overall design, feel and function of the kitchen and bathroom. So, these two are good places to start your rental remodeling project. However, you don’t want to over-invest to add value once again.
You can spruce up the kitchen simply by sanding and repainting or adding varnish on old, tired cabinets. If you have enough budget, new granite countertops or materials that are not susceptible to scratches and stains will make a good investment.
A fresh lick of paint is another effective way of attracting tenants and maintaining current ones. Other areas that increase the value of your rental property include flooring, curb appeal, outside decking and energy-efficient features.
Match It with the Best Tenants
Getting the right tenants for your rental property is as important as everything else. You may have renovated your rental property with high-quality materials and appliances and bought the necessary rental property insurance covers. However, you’ll need quality tenants to recoup your investment and have a profitable rental property business.
Good tenants pay their rent on time and act as your property’s caretakers. They are more likely to take care of your appliances and property in general. They will alert you to issues as they arise, saving you from hefty maintenance costs, and may handle some minor issues themselves.
On the other hand, dealing with terrible tenants can be a costly nightmare, to say the least. These renters are more likely to damage your property, pay their rent late or even fail to pay altogether.
While there’s no fool-proof tenant screening method, these tips may help place the best tenant in your investment property:
- Do a credit score check. Individuals keen to pay their bills have better chances of paying their rent on time.
- Verify income and employment history. Ideally, you want tenants with a monthly income of at least three times the rent.
- Perform a rental background check: have they been paying their rent on time? Have they been evicted before?