“Oh, this house would look so good if we just…”
This is a dangerous mentality for any homeowner, but completely disastrous as an investor.
Updates can increase the functionality, aesthetics, and the value of a home, but not every update is necessary. Some renovations cost tens of thousands, and others are only a couple of hundred dollars. While costing you upfront, updates can be a great short and long-term investment. They can increase the property value, and they can also help you get and keep a good tenant in your property, paying you each and every month.
The danger comes when your heart starts dictating what renovations get done instead of our brain.
There are two parts to this, what renovations should you do (and which renovations to skip in your investment property), and what level of upgrades should you complete the projects you undertake.
Kitchen Renovation | Photo by Naomi Hébert on Unsplash
Many view the kitchen as the heart of the home. It generally has a good return on investment (ROI), but not every house NEEDS a kitchen reno, and most don’t need a complete gut job.
Money and budgeting are important as an investor. You need to ensure that the numbers make sense, meaning your property can generate more money than it costs (You can read more about how to make your investment property have a positive cash flow here.). That being said, don’t be cheap. You’ve invested all of this money to buy the property, but there will be times when you have to reinvest into a property to maintain it and keep it nice. Sometimes renovations need to happen when you first buy the home, and sometimes they can wait a couple of years but then need to be addressed. Have a realistic renovation budget in place for the home. If your home doesn’t need renovations when you buy it, set money aside from each month’s rental income to go towards any future renovations that will come up.
Sometimes new cabinets are necessary, especially if the current layout of the kitchen isn’t practical. Other times, getting cabinets professionally painted can be a less expensive way to bring new life to a tired and dated kitchen. Neutral, timeless options for counters and backsplash are also smart choices. Avoid being trendy on big-ticket items. This isn’t your dream home, it’s an investment, so neutral and timeless are the way to go. You want to appeal to the masses.
Don’t waste your money on a chef’s kitchen with restaurant-quality appliances. Faucets and sinks also greatly range in price. There are cool options out there, especially at specialty kitchen stores. Don’t get caught up in the fancy extras. Practical and nice are key.
You don’t need to go with base models, but you don’t need to go over the top either.
Neutral Bathroom Renovation | Photo by Christa Grover on Unsplash
Like the kitchen, people care about bathrooms. They want them to feel clean and relaxing. An avocado green sink and tub are hard sells to tenants. Sometimes a bathroom just needs a new vanity, toilet, or a coat of paint, but a lot of older homes need a complete facelift. These renos can be expensive, but they can also be necessary, and once started they can end up costing much more than expected so be prepared.
Still, bathroom renos can be a good investment if done right.
Unless you’re building a luxury home, there aren’t a lot of features your bathrooms actually needs. Keep it simple.
A new bathtub can be a good investment in starter family homes. However, a luxury soaker tub isn’t needed and isn’t going to be a good ROI.
A new shower head is a simple, inexpensive update that can dress up a bathroom. Converting the shower into a steam shower, not needed.
Good ventilation may not be flashy and easily noticeable but is important to help prevent mould and mildew. It can save you time and money in the long run. Again, as with anything, look for good and practical. It doesn’t need to be high-tech.
Curb Appeal | Photo by Ralph Kelly on Unsplash
First impressions can make or break, so be sure your investment property looks pleasing to tenants.
This can mean a fresh coat of paint on the shutters, front door, and garage door. It could mean updating the house numbers to something fresh and visible.
Speaking of garage doors, make sure it’s in good working order.
Adding a low-maintenance garden can cost a couple of hundred dollars but really make an impact when you first see the house. Avoid making the garden too large. It may look nice, but it can also look like a lot of work not everyone will want to maintain.
If the driveway is cracked and in rough shape, have it refinished. As long as it looks fresh and in good shape, that’s sufficient. Expensive poured and stamped concrete are unnecessary.
Since we’re talking about outside, let’s discuss what’s worth tackling out back.
Like the front yard, don’t add extensive and elaborate gardens. They may look beautiful but when many people look at them, they see work. It can take a lot of effort to keep a large garden looking good. Most people don’t want to put in that time, and as a landlord, you don’t want a neglected garden.
One thing you may want to add or update is a deck. A back patio/deck can turn the backyard into an outdoor living space that your tenants can enjoy. However, don’t go overboard with this. Multi-tiered decks, pergolas, built-in fire pits may all look nice, but they’re unnecessary expenses.
Paint- You want your home to be fresh and inviting. A fresh coat of paint throughout the house can go a long way. Stick to neutral colours.
Floors- Floors can be another decent-sized expense depending on the numbers of rooms you’re doing. Updating tired carpet with nice laminate floors can transform a room making it feel inviting and new. If carpets are worn, it can make the whole room and house feel far more dated.
If the home has old hardwood floors, maybe you need to have them sanded and sealed. This can give your floors years of added life.
If you have tiles that need replacing, stick to something easy to clean, and neutral. This is a long-term investment so go with good quality, timeless tile that will work for years to come.
Avoid carpet. While flooring trends change, laminate and hardwood floors are preferred because they’re easier to clean and maintain.
Again, like everything on this list, look for nice and practical.
Backyard Swimming Pool | Photo by Bruce Christianson on Unsplash
Don’t add a pool. It’s that simple.
Some people love pools, but most people don’t want to deal with the headache of owning and maintaining a pool. Even if you find a tenant who wants a pool, as an investor, you aren’t going to make your money back with a pool. It costs a lot of money and limits the number of prospective tenants for the property.
As a landlord, you could also be liable for injuries and accidents that happen. You will also need a sufficient insurance policy to cover the pool and possible liability.
If your investment property already has a pool, make sure you have the proper insurance coverage, and spell out pool rules and responsibilities in a written and signed agreement with the tenant.
On the same note, avoid hot tub Jacuzzis.
Don’t remove bedrooms to create fewer larger bedrooms. This is often done to create large master suites.
Master suites as a whole can be skipped. As long as the bedroom has a fresh coat of paint, good flooring, and a decent light fixture, you’re good to go. If your house already has a master suite, renovations to skip in your investment property are expensive custom closets and high-end bathrooms. Make sure it is fresh and practical, but more than that is going to cost you without the return.
Bigger bedrooms were common for years but are now moving back to more usable spaces designed for sleeping, not for living. Families generally want a minimum of 3 bedrooms, so knocking down walls will hurt you in the long run. Put down the sledgehammer and stop making unnecessary projects.
Home Theatre | Photo courtesy of gsloan on Flickr
Like removing walls, converting a bedroom into something else (i.e. a library, media room) is another unnecessary investment.
These luxury style rooms and renovations to skip in your investment property. They work in an upscale neighbourhood with the extra square footage, but for the average family home, they aren’t necessary.
A bedroom can be used as another room, but don’t put money into built-ins or permanent changes that keep the room from functioning as a bedroom. It’s better to keep the bedroom a nice usable blank canvas and let the tenant decide how they want to use the space.
The same goes for the garage. Don’t convert your garage into an elaborate workshop, playroom, or living space. People want big open garages where they can park their cars (and stuff). Don’t waste money making your garage into something it’s not meant to be.
Just like converting bedrooms into specific spaces upstairs, you don’t want to convert basement square footage into very specific rooms (i.e. wine cellars, home gyms). Keep things simple and let your tenant use the space in a way that meets their needs.
Sunrooms- Beautiful but unnecessary. This added room doesn’t add real value to the home, and it can cost you extra in heating and cooling, and if you’ve added square footage to the home, it can increase your property taxes. If you’re putting time and money into expanding the home, make sure the space is useful and adding real value.
Solar Panels- Being green can be smart and you should do what you can to help reduce your carbon footprint, but solar panels are a big cost without the ROI. Ultimately, they’re an unnecessary investment.
What level of finishes are expected in your area? In some neighbourhoods, stone countertops I the kitchen and bathroom may be expected, in others, a nice laminate may be all you need.
Unnecessary renovations can eat into your profits, but you don’t need to do the bare minimum. Going for an option that’s a grade above the “expected” can set your house apart without completely breaking the bank. Showing that you care about the house enough to make it look nice goes a long way.
Paying that little bit extra for durability is a smart choice when it comes to upgrades in income properties. Even if your lease agreement states the tenant covers the cost of damages, it is a lot easier making sure your home holds up to life. If things don’t break, you’ll naturally have fewer tenant phone calls to worry about.
Be smart with the renovations you undertake. Don’t create unnecessary projects. Remove the emotions and use your brain to decide if things in your home legitimately should be updated or if they're renovations to skip in your investment property.
For more ways to invest in real estate like a pro, check out our 10 biggest tips for driven investors.
