When it comes to renovating an investment property, there is one golden rule you must obey – and that is to renovate with profit in mind.
This is a very difficult mindset for many people to enter. Why? Well, people let their personal tastes, preferences, and feelings color the process – meaning the often waste unnecessary time and money on non-essential things which won’t translate into profits.
For example, there was a lady who was preparing her house for sale and insisted on installing expensive chandeliers throughout the house – because it’s something she always wanted to see in her own home. The ironic thing was, it was one of the first things the new owners ripped out and replaced!
So, if you are feeling a little unsure about how to renovate for maximum profit, then read on.
1. Understand Your Target Market
In the previous example, the lady was unable to make a distinction between her own tastes and needs and that of her ideal buyer.
The home she was selling was a modest starter home on the outer suburban fringe. The people most likely to buy were young families of limited means. Gilt crystal old-world chandeliers were something better suited to a specific heritage luxury home, rather than a starter home intended for contemporary young families.
She overinvested in things that had no appeal to her target buyer and cost her a lot of money without providing any financial return.
2. Neutral Colour Palettes & Mid-Range Fittings
Unless you have a very specific property or target market, you will likely be wanting to stick with neutral finishes and contemporary of modern fittings to appeal to the broadest range of people.
Following the latest trend can do more harm than good. Most renovation trends rapidly fade out, so it’s often better to stick with functional materials and designs that can last for a long time.
Light whites, grey and cream colours suit many different architectural styles and design periods. These are excellent shades to use throughout the property and create a light, airy blank canvass for the prospective owner or tenant – especially when combined with classic feature highlights like wood-like flooring, striking counters or tiled areas.
Don’t be afraid to ask the showroom salesperson about what the most popular color options are. If they are popular, they are probably a safe option to choose from.
When it comes to a choice of finishes, you don’t want to over-invest. For example, there is no need to spend big on a marble benchtop when a new laminate or wooden one will do.
However, you need to make sure that whatever tiling, flooring, cabinetry, light, and plumbing fittings meet the standards of the local market.
When selecting materials, you should also aim for top-tier materials on larger areas and use the more expensive materials in smaller areas.
For larger areas, it still generally pays to avoid the bargain-basement options, as they may have shorter lifespans. Aim for moderately priced options of popular lines to get a balance between price, look, and quality.
3. Aim for Mostly Cosmetic Touch-Ups
Knowing the difference between a cosmetic and full renovation is important. While you might have a picture in your mind of what you want your home to look like and you may be tempted to move the location of the kitchen, add a second bathroom, etc it’s rarely cost-effective to go that far.
This is where cosmetic renovations come into play. Cosmetic renovations include touch-up projects like resurfacing, painting and renovating existing features like kitchen cabinets instead of completely replacing them.
It’s even possible to overhaul a horrible wall to wall pink 80’s bathroom without replacing a single basin or tile. All you need is a lick of paint and you can recolour the tiles, bathtubs, sinks, and cabinets for a fraction of the cost. You can modernize the whole look by adding some new door handles, towel rails, and taps.
When renovating an investment property, it pays to avoid making any changes to major systems or structural components of the house like layout, weight-bearing walls, plumbing, and electrical systems. This will help keep costs down by limiting the number of different tradespeople you need working on the job.
As a guide, you shouldn’t spend more than 7% to 8% of the property’s current value on a cosmetic renovation, and no more than 3% on the bathroom and kitchen.
4. Watch Out for Potential Hidden Renovation Costs
It goes without saying that older homes generally require bigger renovation budgets. Older buildings have different kinds of architectural features that you might not find on newer buildings. These could include tiny rooms, long corridors, and some layouts that are not energy efficient.
Things were also done differently decades ago, so renovating and while trying to match the original character and style will take more time and money.
You should also watch out for old-fashioned plumbing and electrical wiring. Old electrical wiring can be a safety hazard since some of the newer appliances today use more power than some of the old household electrical systems can handle.
You should also look out for unsafe materials like asbestos and lead, which were commonly used in roofing, HVAC systems, popcorn ceilings, and ductwork. If you don’t have to scrap or cut those materials, then you won’t have to change them. But when your renovations include cutting through those materials, the specks of dust and powder can be hazardous and need to be handled by a professional.
Watch out for water problems, as well. Since your home changed hands over time, there’s also an issue of the kind of renovation that was done repeatedly. Some previous owners may not have handled the plumbing and drainage issues correctly, and this might impact the cost of your renovations.
Other things that can significantly increase your budget include replacing old hot water systems, roof tiles, weatherboards, floor coverings, landscaping, wardrobes, fencing, and tapware.
The most important thing to remember when renovating is whether a particular renovation idea helps remove a barrier for renters or prospective homeowners.
By far the biggest concerns most people have are the first impression of the kitchen, bathroom and living areas and whether the floorplan and storage options are functional. In cool and hot climates, things like a lack of heating or air-conditioning can be a deal-breaker – so it’s worth investing in putting in these systems.
They won’t necessarily be looking for nice to have’s such as the energy efficiency rating of the building or luxury fittings.