We are often asked, “when is the ideal time to renovate an investment property, and what are my priorities?” Of course the answer is obvious, “it depends.” So many factors enter into the decision of what to renovate and when to renovate! But the first thing to remember is: this is NOT your house! Save your dream finishes for you!
What is your intention for that specific property? Will it be a rental? How about a student rental? Maybe you bought this property to add a legal suite immediately? You’ll need product choices that will stand up to harder use, BUT also have a pleasing aesthetic. For example: luxury vinyl plank is very popular in rentals these days. Also, simple but trendy bathroom vanities that can easily be replaced if necessary. And we always suggest the most durable but economical countertop you can fit into your budget; there are a great variety to choose from! And here’s a great tip for multiple rental properties: pick a paint colour that is currently trendy—then use it for all your properties this year. Remember, you want to appeal to the widest variety of tenants possible. We actually review paint colour trends yearly, but we may only change our choices every 2-3 years.
What kind of rental market are you in? Currently, in Calgary, tenants still have a variety of properties to choose from. Therefore, as a Rental Housing Provider, we are competing against a lot of other properties. We want the highest quality tenants for the best market rents we can get today. For that reason, we love to renovate when we buy the property. Adding a legal suite will instantly improve our cashflow, as well as our long-term equity position. Or, for single family, paint, flooring and repairs will go a long way to creating an appealing home for your renters. Plus, when we renovate right after purchasing a property, it gives us a month or so to get to know the property: where does the morning sun come in? what’s the best way to access the parking? are there other features that we can share with prospective tenants when we show the home?
Who is your ideal tenant? Your renovations and priorities will be very different depending on whether you market to students, families, professionals or executive rentals. Also, if your ideal tenant is a Rent-to-Own candidate, then you may need to upgrade some of your finishes to attract a client who will be motivated to buy in 2-5 years’ time. In this case you may need to upgrade kitchen cabinets, and even appliances. Many millennials and other clients who are looking to purchase a home by way of Rent to Own are NOT looking for a project. As a starter home, you don’t need high-end finishes, but you will find better candidates when everything is clean and updated to the community standards.
Other times to renovate? Once we have done our initial renovations, and we have a tenant or Rent-to-Own candidate in place, we also look at plans for future renovations. Again this all depends on our goals for the property, the tenant profile, and current market conditions. Our experience has shown us that the better a property looks and feels, the better quality tenant applications we will receive. We generally paint between tenants, and do any obvious repairs. In a competitive rental market, we’ll look to make some upgrades; for example, we might buy an appliance package on sale and install it into a middle-class neighbourhood. That one change can sometimes improve the entire feel of a kitchen; a new countertop can have the same effect. And finally, when we approach our exit strategy, we give careful consideration to any improvements: at this point, what will be our return on any renovation investment? In today’s tough market, if we needed to sell, we might consider some upgrades to compete in a tough real estate market. We would need to weigh the pros and cons of renovation costs to sell faster and for a potentially higher price VERSUS carrying costs if the house is on the market for 4-6 months.
Renovating for an investment property involves entirely different choices compared to renovating your own home. The challenge with rentals is to always prioritize function and durability, while making product choices easily replaceable in case of damage. And the best returns on your investments will come when the property is beautiful and clean, and appealing to the widest variety of tenants. Good quality renovations simply attract higher quality tenants and better rent prices (cashflow)—maximizing return on investment is always the goal!
