“Why would you renovate a rental property, only to have a tenant ruin all your hard work?”
That is, perhaps, my most-asked question since I started sharing our Cape Cod Rental remodel.
When we purchased the Cape Cod Rental, we already had tenants lined up prior to closing. Despite the pressing timeframe (two weeks!), we still made the decision to renovate as much of the house as possible before the tenants moved in.
In response to the “before” tour I shared on Instagram, one person wrote, “I would rent out [the Cape Cod Rental] as is. It looks like a really decent place! If we did cosmetic renovations in our area, at most we’d be able to charge a couple hundred more in rent – not enough to offset the costs. Would be curious to hear how you decide it makes financial sense to renovate for renters?”
Renovating is expensive and time-consuming, for sure. But there are so many reasons to renovate rental properties – not only financial, but also personal.
Today I’m sharing 10 reasons why we choose to renovate our rental properties.
1. First and foremost, renovating a rental property can help justify higher monthly rates.
If your property is decent, as the commentator noted, you can likely find renters without a problem. There will always be a market for decent houses. But why settle for mediocre, when you can have the best?
Monthly rent prices are generally based on the rental market and the condition of the property. So if there is room for improvement, then renovating makes sense. Of course, certain projects have a higher return on investment than others. So from a purely financial standpoint, there’s a lot to consider. You’ll want to run the numbers for each individual scenario, if you’re after the highest ROI possible.
As for “offsetting the costs,” long-term rentals are a long-term investment strategy. If you’re expecting to make back your investment quickly, then maybe you should reconsider your investment strategy altogether. Eventually, though, you will make up the cost in the higher rent that you charge. After that point, the higher rent will factor into a higher ROI.
2. Renovating a rental property allows us to place higher-quality tenants in our property.
Generally speaking, quality tenants are more likely to pay rent on time and take care of the house. So the rationale is that they will hopefully simplify our life as landlords.
Ideally, you want the house to be so appealing, that the tenants have a hard time moving elsewhere. So you ask yourself, “How can I make this property more appealing?” Whether that’s new paint and light fixtures, new floors and renovated bathrooms – the goal is appeal, and first impressions are everything.
3. Renovating a rental property reduces maintenance costs.
One major reason for renovating a rental property is to reduce the time and money you spend maintaining it. The purpose of a rental property is to provide passive income for the landlord. So if you’re spending a lot of your time and money constantly fixing things, it defeats the purpose of setting up passive income in the first place.
Regular repairs of appliances, plumbing, or electrical could ultimate be more expensive than upgrading them in the first place, so it’s definitely something to consider prior to tenants moving in.
In certain situations, it makes sense to renovate in order to prevent maintenance problems before they come up. For example, you may have zero leaks, but you know the plumbing is outdated, and it’s only a matter of time before issues come up. Keeping in mind that it’s much easier to make upgrades and improvements while the property is vacant, you go ahead and renovate.
4. Renovating a rental property can have tax benefits.
Obviously I am not a tax professional and cannot speak on the intricate details of tax laws. But I do know there are a number of ways for landlords to minimize taxes through rules like bonus depreciation. Do keep in mind, however, that when you sell a rental property, you may owe a capital gains tax on the sale.
I highly recommend working with a tax advisor or financial planner, or both, to help you make optimal decisions.
5. Renovating a rental property can reduce tenant turnover.
Part of keeping renter retention rates high is finding ways to satisfy renters, and a newly remodeled house can help improve renter satisfaction. Once you secure a higher-quality tenant, you’d ideally like them to continue renewing their lease. One surefire way to secure that is to make your property difficult to leave.
The theory is proven time and time again: If you provide an excellent standard of accommodation, the likelihood is, tenants will stay long term. Tenants are unlikely to move because of issues within the property as there is never a large volume of high-standard accommodation for them to move to.
6. Renovating a rental property can increase property value.
While property value is typically determined by factors out of your control — like location and the current market — adding certain upgrades can also increase its value (while making it more appealing to prospective tenants who are willing to pay more).
7. Renovating a rental property can help get more cash out of it to grow our rental portfolio.
Increasing a property’s value also better positions you for certain real estate investment strategies, like a cash-out refinance. Strategies like these are usually aimed at building up a portfolio of investment properties, but increased property value will be beneficial in any rental property scenario.
In layman’s terms, renovating a rental property helps you leverage that property on a bigger scale when growing your real estate portfolio.
8. Renovating a rental property allows me to enjoy my job.
Real estate investing isn’t always glamorous or fun. In fact, it tends to be boring more often than not – and in all actuality, it’s soul-crushing for a creative person.
What helps me gather motivation to continue is focusing on designs that excite me. This allows me to enjoy the process of remodeling, designing, staging, etc, rather than simply getting by with doing the bare minimum.
I talk a lot about why real estate investing is generally very difficult for someone who enjoys design and aesthetics in this post: “Your Most-Asked Questions About Property Investing.”
9. Renovating a rental property gives me opportunity to create content for FOXYOXIE.com.
The relationship between real estate investing and running a blog is complex and full of intricacies, but suffice it to say that they are mutually beneficial. In fact, I’ve said it before, and I’ll say it again: A successful design blog is a must-have if you want to get into remodeling but care about design.
I expand on this topic quite a bit in this post: “Your Most-Asked Questions About Property Investing.”
10. Renovating a rental property allows us to bring value to those seeking it.
Ultimately, not everything in life is about money – not even in real estate investing.
We believe our business has a moral code it must live by in order to be “profitable” to our souls, not just our bank account. Our rental properties are not “just another flip house;” they are a thoughtfully designed opportunity for someone to live in the house of their dreams, whether it’s a rental or a newly renovated home.
We do not partake in big bulk investing, where houses are harvested rather than cultivated. Instead, we put in so much thought, intention and resources into properties we renovate – far more than is necessary – because we want to create something special for those seeking it.
Tell me: Did you learn anything new from today’s post?
What topic would you like to discuss next? Which renovation projects have the highest ROI? Where to find good deals on home improvement materials? Something else?
Let me know in the comments, below, and I’ll add the topic to our content calendar.