Undertaking renovations on an income property can be a significant investment — both in time and money. In addition to the capital required to fund the rehab, you’ll also have the unit unoccupied for the duration of the renovation, which reduces the income potential of the property to zero for a short time. So if you’re going to take on a renovation project, you want to make it worth every dollar and every minute of your investment.
Here are three ways to maximize the ROI on your income property renovations.
1. Focus on the Right Projects
To maximize the ROI on your income property renovations, it’s smart to focus on the projects that are already most likely to produce solid returns. Mid-range bathroom remodels, for example, offer resale returns of $1.71 per dollar spent, according to Architectural Digest. A mid-range remodel means replacing the vanity and updating the faucets, handles and lighting with inexpensive but aesthetically pleasing fixtures.
Generally speaking, mid-range renovations perform better across the board than high-end renovations because they require lower returns to cover the initial financial investment. You want to avoid over-improving with luxury fixtures in a market that isn’t willing to pay for these expensive finishes. Instead, choose reasonably priced, durable finishes that will hold up well tenant after tenant. For example, laminate planks typically wear better than more expensive hardwood floors, but they cost less.
Quick cosmetic updates also make a big impact on a budget. Painting, landscaping and cabinet refinishing are all inexpensive upgrades that can help you maximize the rent on your income properties.
2. Estimate Costs Accurately
Before you jump into a renovation project, make sure you have reasonably accurate cost estimates for the project. Accurately projecting costs will help you confirm that the ROI will be acceptable before you start the project.
The problem with many renovation cost projections is that they’re based on national averages. And of course, the labor and material costs vary greatly by location. So these national averages are largely irrelevant.
Smart estimate tools like PropStream’s rehab estimator use local labor and material costs to help you calculate the most accurate expense estimate possible for your renovation project.
3. Find Tenants Quickly
Until you can get tenants moved in and paying rent, your income property renovations have an ROI of zero. So it’s critical to find the right tenants and get them moved in as quickly as possible.
Even before your renovations are complete, you can start marketing to prospective tenants. Most tenants need to give at least 30 days’ notice of intent to vacate at their current residence, so they’ll be looking to move more than 30 days out. Take advantage of this window to start advertising the property with renders of the completed renovations.
Online marketing is an excellent way to reach today’s renters. With PropStream’s built-in online marketing tools, you can create a property-specific landing page to promote your property, as well as in-browser ads to drive traffic to your new landing page. Ideally, you’ll be able to have your new tenants scheduled for move-in as soon as the renovations are finished.
When it comes to renovating your income properties, every choice you make impacts your bottom line. With the right renovation projects, accurate cost estimates and quick tenant move-ins, you’ll be able to maximize the ROI on your renovations and make the most of your investments.