Rentals and Renovations: How to Increase Your Rental Returns

Every homeowner knows that rental renovations are a great way to increase property value and improve the quality of life of those who live there. When it comes to rentals and renovations, the work done to develop your property can go a long way to ensuring you get the maximum rental returns and can help you attract and retain high-quality tenants.

Why Renovate your Rental Property?

1. Reduce your rental property’s ongoing maintenance costs

Things break in rentals and renovations are one way to preemptively address these potential issues. For example, hinges stiffen, pipe joins begin leaking, flooring becomes worn, fittings and fixtures age, and appliances break. Often the longer you leave these issues, the more expensive they become to fix.

By renovating a rental you can reduce the need for ongoing maintenance, avoid those midnight callouts, and preemptively address potential issues before they escalate saving yourself time and money.

2. Appeal to higher-quality tenants

Freshly renovated properties are more appealing to tenants. They look better, are more pleasant to live in, and as mentioned above things are less likely to break or go wrong during the tenancy. By maintaining your rentals to a high standard you can appeal to higher quality tenants and maximize the potential rent rate you can charge.

3. Increase the property value and rental returns

Additionally, well-managed rental renovations will add value to the property. This will help you build equity, increasing both your cash flow and the overall capital gains in the long run.

4. Compete with rental demand and decrease vacancies

Unless there’s a particular housing shortage in your area a run-down rental may be hard to fill. This can lead to longer vacancy periods and dramatically impact the overall profitability of your investment. Fresh renovations make the property more appealing allowing you to compete in competitive markets and keep your vacancy periods short.

Rentals and Renovations: Ideas to Increase Value

Not all renovations are equal in terms of cost vs value, so make sure you undertake renovations that offer a great return on investment (unless, of course, you need to repair something that has been damaged, in which case it should be fixed regardless).

If you don’t consider cost vs value in rental renovations, you could end up spending a lot of time, effort, and money on a project that doesn’t have a lasting impact.

Midrange bathroom remodel

Mid-range bathroom remodels generally fall somewhere between jobs like updating the toilet and shower but not ripping out the whole room and starting from scratch. You might replace the bathroom suite but won’t be changing the whole layout.

With a higher budget, you can choose quality materials without breaking the bank. Consider little touches of luxury when remodeling,  like installing a heated towel rail, creating more storage, and opting for stone rather than fiberglass or acrylic.

As a benchmark, it is estimated that a mid-range bathroom remodel will cost around $25,000 with a return of about 60%. This depends on the size of the room, the location you’re in, and the cost of materials, among other factors.

While the cost of a bathroom can easily stack up if you’re not careful, it’s a huge opportunity for added value as it’s a room that is guaranteed to be used multiple times a day, whether you have one tenant or five.

Minor kitchen remodel

Kitchens are the most popular room to remodel, with endless options for customization. Rather than spending a lot of money here, a minor remodel will help to make it feel new without the time and money commitment of a bigger renovation project. You might swap or paint the cabinet doors, replace the floor, and update the backsplash.

When doing a minor kitchen remodel, you can also expect to spend around $25,000. As with bathrooms, kitchens are used every day so it’s a good idea to spruce them up once in a while. In 2021, the national average cost recouped for a minor kitchen remodel was 72.2%, making it one of the most reliable renovations in terms of cost vs return.

Bathroom accessibility updates

With people living increasingly longer lives, bathroom accessibility updates are another relatively small fix that can have a life-changing impact. Consider installing grab rails, shower seats, non-slip flooring, and more lighting. Depending on your budget, you could also convert the whole bathroom to a wet room.

Cost varies significantly from under $20 for floor mats and railing to purpose-built walk-in tubs for $4000 and the cost of full room renovations. Even if you are unable to swap everything in the bathroom with accessible alternatives, one or two touches can go a long way to attracting and retaining tenants who rely on these aids.

Easy Rental Renovation Ideas

When considering rentals and renovations, smaller projects can often be just as worthwhile as the big ones. Here are some easy renovation ideas.

Repaint

Adding a fresh coat of paint to a room is a job that anyone can do, regardless of experience. A good rule of thumb is to stick with neutral colors, which are guaranteed to be appealing to a wide range of tenants. Make sure you keep a note of the color name and brand of the paint you choose, in case you need to do touch-ups in the future.

Install new floors

Depending on which material you use, updating the flooring as part of your rental renovation project can lead to a reliable return on investment. Hardwood or luxury vinyl flooring, for example, will not only look desirable but with the right maintenance, it will stand the test of time, meaning it has to be replaced less frequently. Hardwood flooring, in particular, is a high-value option with an estimated return on investment of 80%.

Regrout bathroom

New grout is probably not high on the priority list for rental renovation projects but refreshing it will make a difference. Stain-resistant grout is inexpensive and will keep your bathroom looking fresh for longer. It also has the added benefit of being easier to maintain, so our tenants will be happier too.

Update curb appeal

Curb appeal refers to the general attractiveness of a property when viewed from the street. Having strong curb appeal will create a good first impression for potential tenants and existing tenants will be happy to stay in a property they are proud of. To increase the curb appeal of your rental property, relatively easy projects include adding outdoor lights, cleaning external walls, installing a new garage door, and landscape maintenance.

Update appliances

Swapping out old appliances for new ones is perhaps the fastest rental property renovation project. As you’re not doing any invasive building work, you probably won’t need to pay anyone for installation fees and you can manage the whole process yourself from start to finish, it’s an easy way to increase rental returns. Smart home tech can go a long way to helping you make your property more energy-efficient too.

Rentals and Renovations: Repair vs. Replace

Repairs are immediately deductible in the tax year, whereas replacements or projects that are adding value to your property need to be depreciated.

A few commonly repaired items

• Floors: Carpets have a lifespan of 5 years, whereas laminate or wood flooring has a lifespan of 27.5 years. Have carpets professionally cleaned between tenants to keep them fresh. Replacement times will vary depending on the type of flooring in your property.
• Appliances: The IRS categorizes appliances used in rentals as having a lifespan of 5 years. Repairs can be carried out as and when needed but replace appliances when they are no longer working as required.
• Cabinets: Cabinets generally have a lifespan of 7 years. Individual cabinets can be fixed if damaged (new hinges or doors) as long as they remain structurally sound. Think about replacing them at around 7 years.
• Furnace: The depreciable life of an HVAC system in a rental is 27.5 years. Filters should be replaced more often though, according to the manufacturer’s guidelines.
• Windows: Windows should be fixed as soon as they are damaged as they can compromise the temperature of the house and can lead to issues with dampness and mold. They also have a depreciable life of 27.5 years.

Tracking Rentals and Renovation Expenses

If you’re hiring independent contractors and paying them over $600 to help carry out your rental renovations, you’ll be required to file a 1099 MISC form. With a dedicated expense tracker like Landlord Studio, you can assign expenses to a specific contractor in the system, then at the end of the year, run the supplier expense report. This will allow you to take full advantage of the deductible expenses available.

Regardless of whether or not you’re enlisting the help of contractors, diligently tracking your rentals and renovation expenses using Landlord Studio will help you to streamline your accounting and keep on top of your rental property management.

Related:

• Setting Rent: How Much Should I Charge for Rent?
• Rental Property Accounting 101: Capital Improvements vs. Repairs
• Understanding Rental Property Depreciation and Depreciation Recapture
• 11 Best Rent Collection Apps For Landlords