What’s the difference between renovating for a flip, and renovating for an investment property?
When it comes to renovating a rental property, I find that many real estate investors, particularly newbie investors, tend to overspend. It’s natural to want to do this. After all, you want to make your rental property as desirable as possible so that you can garner the best tenants, and generate the highest rents, right?
First of all, do the math! Spending an extra $20k on renovations to garner you an extra $100 per month in rent is going to take you 16 years to pay off! And on top of it, the tenant may end up ruining your work anyways, requiring you to renovate again in 2 or 3 years. This doesn’t make any sense. Plus it takes time to renovate…time that you are not earning valuable rental income!
Here are the top 5 things to focus on when renovating a rental property
1. Curb appeal. Your rental property has to have maximum curb appeal. This means cutting back the trees, cleaning up the yard, cleaning the gutters painting the door, etc. What is the first impression that your prospective tenant has when they drive up to the property? Unlike with a flip property, the tenant doesn’t really care if you have a new roof or not.
2. Cosmetics. You want to make your rental property look good, but it doesn’t have to be the Taj Mahal. Paint and new flooring go a long way! Use higher gloss paints that will wash better in the higher traffic areas, and use vinyl plank flooring that is virtually indestructible, instead of laminate or hardwood that might be great for a flip property. Replace the old light fixtures as well as the brass door and cabinet hardware with modern, brushed nickel parts. These parts are cheap and easy to install, and will make your revenue property look contemporary.
3. Functionality. Make sure that everything works! Replace the old toilet parts, the old thermostats, rubber washing machine hoses, sink cartridges and hot water tanks. These are items that will break down on you, and cost you money when you have to get a plumber out to the property on a Saturday night at overtime rates.
4. Bathrooms and kitchens. If you’re doing a flip, then of course you are going to spend most of your dollars here. For a rental property, make your kitchens and bathrooms modern, but don’t overspend! If you have old cabinets, simply painting them white and changing out the handles may be enough to give it that modern pop.
5. Appliances. Replace the avacado and beige stove and fridge with modern, clean, white appliances. No need to spend the extra for stainless steel, or gas ranges, unless of course you are managing a higher end rental property, or doing a flip.
To summarize, it’s important that you do the math when spending your hard-earned dollars on renovations for rental properties. We like to ensure that our investment is going to pay off in 3-4 years maximum, otherwise we simply won’t do it, but you have to set your own metrics. In a tight rental market like Vancouver, spend less. In a market with higher vacancies like Alberta is right now, you may have to spend a bit more, but just don’t go crazy!