When Are Rental Property Renovations Worth It?

Your rental property may be functional and profitable, but it can always be a little bit better. With the right renovations, you can almost instantly make your property more attractive to tenants, you can afford to increase rent, and you can even benefit on the back end from a higher property value overall.

On the other end of the spectrum, the wrong renovations can cost you a lot of time and money without providing much additional functional utility or value to you or your tenants.

So when are rental property renovations worth it? And what’s the right way to approach rental property renovations?

The Value Equation for Rental Property Renovations

Some rental property renovations are going to be more valuable than others, especially in terms of return on investment (ROI). ROI is a measure of how much value a project gives you compared to how much it costs.

The cost side of the equation is relatively straightforward, especially if you’re just paying contractors to complete the work for you. Still, you’ll need to factor in all costs associated with the project, including labor and materials, as well as the cost of your time.

As for the value side of the equation, there are several things you’ll need to consider:

Functional need and safety

First, you’ll need to think about the functional need for the renovation as well as any impact that the renovation may have on safety. As a landlord, you’re responsible for keeping your property livable and safe for your tenants, so some renovation projects become valuable out of sheer legal necessity.

Rent increases

If you make the right upgrades, you can reasonably charge your tenants more rent. Depending on the scope and nature of the project, this can allow the project to eventually pay for itself, even if it does take several years to get there.

Tenant attraction

Perhaps even more importantly, good renovation projects are going to make your property much more attractive to prospective tenants. This is going to greatly reduce tenant turnover and make it easy to fill your property if and when it becomes occupied.

Home value effects

Finally, certain renovations to the property are going to increase its value, which can help you make the overall investment more profitable when it’s time to sell the property.

As a result, many renovation projects can pay for themselves many times over.

Examples of Worthwhile Rental Property Renovations

These are some examples of worthwhile rental property renovations, though keep in mind that every property and every investor is unique – and not all of these renovations are worthwhile in all situations.

Necessary repairs

Practically any truly necessary repair is worth making. It’s going to make the property safer, more resilient, more attractive, and less susceptible to further damage. If you have a chronically leaky roof, you might as well replace it.

Kitchen and bathroom upgrades

Kitchen and bathroom upgrades are often highly viable because tenants want these rooms to be modern and attractive.Plus, these projects have a significant impact on your property’s value.

Landscaping and outdoor spaces

Any effort you spend on landscaping and improving the outdoor space of your property is likely going to be worth it. It boosts curb appeal and increases the available space to your tenants.

Smart home modules

Though not everyone is sold on smart home features, smart home upgrades are going to make your property seem more modern and higher end.

Energy efficiency upgrades

Energy efficiency upgrades are similarly valuable. In addition to making your property more sustainable, they should also reduce utility costs significantly.

Modernization and aesthetic improvements

Almost any renovations you make to modernize the property or make it more aesthetically attractive will also be worth it, assuming you make a big enough improvement on the original space.

Extra Tips for Success

These extra tips can help you be successful in managing your rental property renovations:

Work with knowledgeable experts

Sometimes, it’s hard to tell whether a renovation is going to make the impact you think it will. That’s why it’s valuable to get the opinions and insights of knowledgeable experts. Working with a property management company can help you decide which renovations and improvements are strategically appropriate.

Estimate conservatively

When estimating costs in terms of both time and money, always estimate conservatively. This way, unexpected developments and surprise extra costs won’t cause your value equation to collapse.

Network to find better contractors

Networking is one of the best ways to meet and connect with new contractors – and the bigger your contractor network is, the better. Work to meet more people so you always have a roster of available, affordable people to help you complete your renovations on time.

Invest in quality

It’s tempting to skimp on materials to save money, but oftentimes, it’s better to invest in quality. Quality materials last longer, are more attractive, and often end up paying for themselves.

Time your projects correctly

Finally, be strategic with how you time your renovation projects. Take advantage of vacancies to handle bigger and more involved projects – and if you plan on selling your property in the near future, focus on projects that reliably increase home value.

Rental property renovations aren’t always worth it, but they can be extremely valuable when properly considered and implemented. Plan carefully and always get multiple estimates to ensure you remain under budget.