Renovating a rental property can add value and increase rentability. Smart renovation choices can save you money long-term. As a real estate investor who has renovated multiple rental properties, I have learned some valuable lessons. Some were lessons I learned in advance of my projects through research. Some I learned the hard way. Renovating a rental property is an important piece of any rental property investor’s business plan. Here’s is Mashvisor’s guide to renovating a rental property with an eye toward saving money.
Ask Yourself Why You Are Renovating Your Rental Property
Before you begin to renovate a rental property, ask yourself why you are doing the project. One common reason is that the investment property is “fully-depreciated” and just needs to be refurbished to maintain rentability. Another is to add equity to a property in order to prepare the property for eventual sale. However, the best reason to renovate a rental property is to maximize the return on your investment by increasing rent. Cash flow is king. If your renovation won’t increase or maintain your property’s rent roll, take a step back and reevaluate.
Plan Ahead and Set Boundaries
Unlike a home renovation on your residence, rental property renovations are not personal. You should look at the project with a real estate investor’s eye. Your goal is to get the most added rent or equity with the least dollars spent. That goal should guide the project’s scope, but also the material selection, style, and even the choice of contractors you work with.
Renovating a rental property can quickly get out of hand. “Renovation creep” is a derivative of the term “mission creep.” It refers to a limited project that spirals out of control as new challenges come up. Be assured that when you begin your renovation there will be unexpected work that must be done. Much of it will be spent just to meet code requirements and to repair hidden damage. My personal experience is that a 20% budget adder should always be included just to meet these requirements. When you find hidden electrical, plumbing, and structural damage after the project begins, your 20% buffer will kick in and save you from a failed project.
Start by Finding the Right General Contractor
If you don’t already have a general contractor and handyman that you work with, choose wisely. You do not want folks who primarily renovate fancy homes. They focus on superior quality and custom installations, neither of which you want. Find a contractor that works mostly on affordable homes and apartments. The same is true of your handyman company. Try to find ones with a large crew. Your time is valuable and you need help and work done quickly. Always insist that every contractor show you a workman’s compensation and liability policy prior to a contract being agreed to. Eventually, someone will be hurt working on your rental properties. Be sure the liability rests with the company that employs that worker.
Improvements to Increase Rental Value
Add a Bedroom
Let’s dive into the nuts and bolts of making money by renovating a rental property. The first is bedroom additions. Does your investment property have a large master bedroom that can be split in two? Or perhaps attic space that is unfinished? Or best of all, a basement with a full-height ceiling that is unfinished? If so, speak to your contractor about legally converting these spaces to add a bedroom. Nothing will add to your rental income more than adding a bedroom. Let us emphasize the legality of this. If you plan to add a bedroom, ensure it meets code in advance of the work. Speak to the town inspectors. Read the codes yourself. Always start with ingress and egress (legal entrance and exits). Then look at minimum square footage and minimum ventilation and window requirements. Last, a bedroom must have a closet.
Add a Half-Bath
Following a bedroom addition, the addition of a half-bath is always next. Can you carve out space anyplace in the unit to add the smallest possible toilet and sink space? If so, carefully consider the cost versus your expected rent increase. Focus on a five-year to ten-year payback. Small bathrooms are never worth installing if it means expensive plumbing changes. Above and below existing bathrooms is the only viable location in most cases.
Add Laundry Connections
Next up, add an in-unit laundry area. From experience, I do not recommend owning the actual washer and dryer in the unit. The repairs become a constant hassle. However, tenants highly value in-unit laundry connections. If your rental unit does not have a laundry space already, adding one – even to an unfinished basement – can boost rent and rentability. Don’t install a laundry room at the top of your unit. The risk of flooding is too high. Keep it on the lowest floor or basement only.
Kitchens and Baths
Last, focus your improvements on the kitchen and bathrooms. As any realtor can tell you, renters and homebuyers value kitchen and bath upgrades. In fact, some renters will have minimum expectations they will not bend on. Kitchen renovations can add value and increase your ROI most easily. There are key buzzwords that boost interest in a rental property unit. Add “granite.” Design it to be a “chef’s kitchen.” Even the least expensive remnant piece of granite will impress a renter more than new laminate countertops. No young couple ever phoned a parent to brag that their new apartment had “laminate countertops!”
Money-Saving Tips for Renovating a Rental Property
Painting a Rental Unit
Here are some tips for real estate investors I learned the hard way. First up, paint every single wall in every single rental unit you own the same color as you renovate or repaint. That color is “off-white.” You save serious money by being able to touch-up and patch paint when tenants move rather than repainting a whole room. Always using the same exact paint makes that possible. Keep the old can of paint someplace safe so you can get another exactly like it locally. Also, write the paint name, code, and manufacturer in your notes so that you can always tell a handyman or painter by phone what they will need. Make every ceiling the same ceiling paint color as well. And your trim. Don’t get fancy. Colors other than white just add to the possibility a renter won’t like the style. Nobody takes offense at off-white walls. It is also a bright color that makes a room look larger. Save the reds, blues, and tans for your own home.
Save Money – Replace Toilets
The second way to save money with improvements is to replace toilets. If your unit has any toilet that is not a “low-flush” toilet, replace it. The savings over the coming years on water costs will pay for that toilet. Most areas require that investment property owners pay for water, not renters. Help renters conserve your money (and water). Always use a common brand low-flush toilet. Low to mid-range priced toilets are just as good as expensive ones. Look for ones that make replacing the toilet seat easy. Ensure the toilet seat does not use metal fasteners. They freeze up. Look for the nylon ones. You can replace those yourself. I suggest the elongated toilet seat rather than round. Make every toilet in every unit the same color (off-white). That way, you always know exactly what replacement seat to buy later.
Doors, Windows, and Skylights in Rental Units
Avoid sliding doors, French doors, and fancy windows. The doors and windows in rental units are considered disposable. They will be broken over time, and spending money on fancy ones is not just a waste of your money, but also a hassle. Keep windows and doors as simple as possible. No fancy locks, no fancy hardware to replace. Pick doors and windows that any handyman can fix or replace. If you do a comprehensive remodel, key all the locks alike. When your contractor installs locks with deadbolts, ensure that the deadbolt and knob lock uses the same key.
Rental Property Kitchen Dos and Don’ts
When you’re renovating a rental property‘s kitchen, make it white. Wood cabinet shades from light to dark come in and out of fashion. People have liked white kitchens since the dawn of time. As one experienced contractor told me, you want to renovate a kitchen one time in your life. Make the style timeless. The kitchen cabinets and countertops should be purchased based on durability. This is the place to spend a little extra now, to save money long-term. Real-wood cabinets will last longer and are more repairable than compressed wood. Granite is surprisingly affordable if you purchase remnants (leftovers from prior big jobs). Granite is also impervious to heat and resists damage well.
Another kitchen tip is to keep the plumbing simple. Do not install a garbage disposal in the sink. It is just one more thing to break and there is a risk of injury. Why take that risk? Disposal units are also not septic-friendly. When you choose the sink and faucet, buy a one-piece faucet of a quality brand. It is easier to swap out a single faucet than it is a three-hole unit. Brushed nickel is your color choice here with chrome being number two.
Rental Property Exterior Renovations
When you renovate the exterior of the rental property, there are some easy ways to save money. The first is to go with white vinyl siding if at all possible. This product will save you time and money compared to a painted surface. Why white? Because if you later need a replacement panel and the product is no longer made, there will be many close matches that will work. Color creates problems.
Rental Property Flooring Options
There are two schools of thought regarding rental property flooring. The first is to find a quality, durable and relatively expensive laminate floor product. The upsides here are long life, easy cleaning, and a bit of an upscale vibe that renters might value. The downside is that if the product is damaged it is unlikely you will be able to fix or patch the spot years later without it looking uneven. Laminate is a must in kitchens and in bathrooms. For living rooms, dining rooms, and bedrooms you have many more options.
The second school of thought is to use carpet everywhere practical. In general, I have learned to lean towards carpeted flooring in living rooms and bedrooms. Carpet companies are everywhere, they will happily move furniture in and out, and they are fast. Carpet is also cheap compared to laminate and much cheaper than hardwood flooring. It is also quieter. If you have a multi-unit rental property, quiet carpet helps keep the tenants happier. In front of entrances inside rooms, consider a small six by six-foot area of laminate tile to help preserve the life of that room’s carpet.
A Warning About Water Heaters
Every water heater will die eventually and when they go, they leak rusty water onto the floor. Water heaters located in the living space can leak and cause major damage. Sure, your insurance might help, but you still have to get the contractor teams lined up and pay the deductible. Change water heaters in living spaces before they leak. If they are in the basement, this is not as much of a concern. Your plumber can decode the water heater label and let you know what its life expectancy was when it was installed.
Closing Thoughts on Rental Property Renovations
As you can see, the general themes for renovating a rental property to save money are to have a clear plan, the right partners, and simple design. Your goal is to make money or save money by doing renovations. Resist the urge to be a stylist.