As the adrenaline from the holidays fades away, the resolutions and goals we set for ourselves are (hopefully) still in clear view. Renovations are a popular "new year" project that many people put on their list, but which renos deliver the best bang for your hard-earned buck?
Renovations that generate the most value:
This is a popular topic among homeowners and real estate investors. Kitchens and bathrooms are the obvious answer, but it’s not always that straight-forward. Assess the condition of your property before making any decisions; look at what needs to be done, not what you "think" will add value. In other words, if you have a leaky roof, don’t renovate the kitchen first.
With any kind of value-adding renovation, whether it be in your own home or in a investment property, you need to compare the costs to what you’ll get back in the form of added income, or enjoyment. The most important thing to rememeber with any renovation is this: you need to ensure that your investment doesn't exceed the return you're expecting over time, otherwise it won't generate positive cash flow (in the case of a rental) or build equity in your property.
Return On Investment (ROI) - when it comes to income properties - can be measured by added rental income and the added equity you can build up in the property. The goal is to maximize both these metrics.
1. Upgrade The Kitchen
The top room when it comes to remodelling ROI is the kitchen. An updated kitchen with new appliances (preferably stainless steel) and clean, well-done cabinetry will increase the value of your property and enable you to charge higher rent.
2. Remodel The Bathrooms
If kitchens are number one, then bathrooms are obviously number two (apologies for the pun). Dirty or dated bathrooms are big turnoff for renters, and pretty much everyone else. A renovated bathroom that features clean, modern lines will greatly appeal to potential renters and entice them to pay a little more for your space.
3. Add a 3rd Bedroom
The ideal number of bedrooms in a home is 3-to-4. The benefit of a 3rd bedroom gives you the opportunity to rent to families or even rent out each room individually.
4. Create Laundry Space
One of the greatest things you can do to charge more rent is to include a private laundry area. If each rental unit has it's own private washer and dryer, you will be able to generate substantially more rental income. If you can tie into the existing plumbing structure, you'll be able to mitigate added costs.
5. Add a Separate Entrance
If your investment property has a separate entrance, consider yourself ahead of the curve. If your home and zoning allows for it, building a separate entrance will give you higher rental income potential as you'll rent separate units within the property. As with any renovation aforementioned, ensure that the investment doesn't exceed the added rental income you're expecting to receive over time.
6. Paint in Light, Neutral Colours
It's a good idea to paint the walls a clean, neutral colour. Bold colours can be a turn off and potentially lower the potential income you could generate. Light, neutral colours - like off-white or cream - appeal to the vast majority of people and they tend to work in any room, thus adding value to your property.
7. Remove Carpeting
Carpeting and rentals go together like anchovies and peanut butter. Carpeting gets dirty and damaged and it is not at all hygienic - which means it needs to be replaced and/or cleaned constantly. Installing hardwood, laminate or vinyl tiling is a great way to freshen up the look of your property and this will generate more interest from renters.
8. Update Lighting and Hardware
Sometimes the smallest things make the biggest difference. Swapping out builder grade light fixtures and cabinet hardware for something more modern, will give the entire room a new look. When these items appear dingy, it tends to bring down the appearance of the entire room.
9. Finish the Basement
In addition to adding valuable living space to your home, a finished basement is a great bonus for potential buyers. With income properties, a finished basement a separate entrance - as mentioned earlier - is a big plus as you can rent out each floor as a separate unit and multiplying your rental income.
Some of these tips are far less expensive to execute, and will generate value for your income properties and build equity in your homes. Remember however that before you undertake any major renovation, it's prudent to evaluate your budget, the area your property is in and weigh these elements against what your planned objectives are.
GOOD LUCK!!
Thanks for reading The Home Blog.
If you have any questions about home renovations or real estate in general, please contact (416) 577-8011.
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