How to Renovate With the Bottom Line in Mind
There are several goals you could renovate toward; make sure you’re pointing in the right direction!
This isn’t an article about what to renovate — there are tons of those on the Internet, and we’ve even written a couple ourselves. This is an article about how to renovate: about changes you can make to the process of renovation that can make your set of rental homes cost less to update, fill vacancies faster, and even let you charge a little more in rent.
Plan For the Big Picture
Renovations for profitability focus on the big picture — what the process will look like across several homes — in order to manage costs and smooth the workflow. There are certain rules that apply to any rental property, and you can take advantage of those similarities to leverage economies of scale. For example, unless the owner insists on something different, you can choose a single neutral color palette and buy enough paint to use it on every home that fits (not every home will, but most should — enough that it’s worth your effort to find that one ideal palette). Similar logic applies to all manner of tile, flooring, sod, and any other generic material you’ll use often.
Balance Current and Future Repair Costs
One of the fundamental truths of renovation is that older stuff costs less up front, but more in the long run. If you’re renovating a home that has a 1960s stove and it works OK right now, you have to stop and think about what happens in six months of abusive tenancy. When it breaks, are you going to be able to get parts and find someone who knows how to repair something more than half a century old? Or are you going to have to draw from your ‘oh, crap’ budget to pull off an emergency replacement? Perhaps it’s better to replace that stove now, as part of your renovation, because you can use your Capital Expenditures budget and get a tax advantage as well as reducing your future repair costs. Similarly, if you have a long-term, high-yield client that you expect to stay with you for 6-10 years or more, consider using materials that will last that long even under constant beating, like Durian instead of Formica for countertops.
Another example of this is hardwood floors versus carpeting. A lot of homes built before the 60’s have original hardwood floors under the carpeting or buried under layers of linoleum. It may cost more upfront to refinish these floors as opposed to just carpeting over them again, but hardwood floors will usually last longer than carpeting thus being cheaper in the long run. It also doesn’t hurt that most people now consider hardwood floors to be a premium feature, so it’s also a selling point!
Design For Your Neighborhood
Before you renovate, collect a bit of demographic data on the neighborhood you’re renovating in. Is the core population fairly old? You should consider renovations that are attractive to senior tenants, focusing on accessibility, safety, and comfort. Is the neighborhood a fairly low-income area? Consider significant investments in security features and on creating a low-maintenance home — folks working 2 jobs like it when they don’t have to put a lot of elbow grease in at home. Is the neighborhood known for an eclectic, ‘bohippiean’ style? Just one or two noticeable touches on the in- and outside of a home can attract the kind of person who is already attracted to the neighborhood.
Inexpensive Details Matter
As someone who sees hundreds of homes and regularly spends (tens of!) thousands of dollars on keeping those homes tenant-worthy, it can be easy to think “Oh, I don’t need to replace the showerhead, that’s a cheap purchase and the tenant will be happy to choose their own.” Not so! Tenants love to move into a home where the ‘insignificant’ details have been attended to. A handheld, low-flow showerhead is a meaningful selling point that you can throw in for $30 or less. Microwaves, doorbells, spray nozzles for the kitchen faucet — there are lots of small things you can do to make a potential client sense your eye for detail. And if you buy in bulk (as per the first point above), you can get a deal good enough to make these quick selling points no-brainers.
Plan your renovations carefully and keep an eye on the next 5-10 years in order to keep costs down. Match your neighborhood and attend to the details to draw tenants in and possibly add $10-$25/month to your rents. Weave it all together, and you design a regular process for your renovations that will keep the process efficient in both time and money — and as a property manager, that’s where your bottom line starts to blossom as well.