Tips to maximise returns through property renovation
The ultimate aim with property renovation is to increase the marketability of your property - that means better tenants, higher income, lesser costs, and higher ROI. There are several things you should do to make sure that you are maximising the return on your investment in your property:
Assess renovation potential
The first step in making sure you’re on the right track regarding property renovation is to assess whether your property has a good potential for renovation. You can do this by having an architect perform an initial assessment of your property to give you the best advice on maximising your space's functionality and beautification.
Your architect will help:
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draw your renovation vision to bring it to life
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make sure that planned renovations adhere to safety codes
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provide solutions for structural problems
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create renovations based on long-term use and functionality of space
Paul Foster, Manager at Evowrap, explains why architects are irreplaceable when it comes to property renovations: ‘While the initial idea can come from you, the need for an architect is a non-negotiable term for property renovation. Many consider architects as costly expenses. However, a well-thought-out architectural plan for your property renovation maximises ROI by generating more income and reducing expenses brought about by poor architectural planning.’
You can consult architecture firms that use time tracking software for architects to help make sure that all billable hours are used wisely - reducing the chances of being billed for non-value-adding activities.
Consider how to keep your renovation costs low
The cost of renovating a property relies on many factors, including but not limited to:
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the area of the property
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the cost of materials
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the extent of renovation to be done
Property renovation does not come cheap. A garage renovation can often cost anywhere from £5,000 to £60,000, and a 4-bedroom house renovation can often cost up to £170,000. Because of this, your budget plays a huge part in making sure that your renovation costs can generate a significant return on investment.
To make a budget for your property renovation:
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create a detailed list of all your renovation plans, including the area and the extent of renovation
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calculate cost estimates
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budget for labour and professional fees
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consider interest rates, if obtaining financing for renovation costs
According to Anthony Martin, Founder and CEO of Choice Mutual: ‘Going above and beyond a planned budget will most likely kill your ROI rather than maximise it. Renovation costs are hefty investments, and many turn to financing options [eg taking on loans] rather than spending cash outright. However, it is important to consider financing interest [eg the interest charged on a loan] as a factor that would hurt your ROI.’
He adds several points on saving costs on property renovation: ‘Try shopping for used materials that are in good condition, and avoid general contractors if you can manage subcontractors yourself.’
Assess the marketability of your location
When doing a rental market analysis, property location is one of the most important factors in arriving at rental rates for your tenants. The more prime and accessible your location is, the higher the value and the more rent you can charge, as long as your property is in prime condition post-renovation.
Why? A property in a prime location is in higher demand than other properties, which means that more people are willing to pay a premium to live in your property.
Jim Pendergast, Senior Vice President at altLINE Sobanco, says: ‘If your property is in a good location (close to amenities, schools, shopping malls, tourist areas), you should consider giving renovation a significant investment as it assures you steady rent income - improving its overall profitability and a higher ROI.’
Consider legal permits needed for property renovation
Any significant change, development, or renovation to a property may require planning permission depending on the work to be performed in the course of the renovation. The most common situations in which planning permission or other prior approval is required when renovating a property in the UK include:
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building a new structure or an addition
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demolition of a significant portion of a structure
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pool construction
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installation of gas lines, plumbing, and electricals (eg if you live in a listed building)
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renovations affecting plumbing and sewage systems, in certain situations
In England and Wales, The Building Regulations 2010 impose health and safety, fire safety, and other standards on people carrying out certain works. The Regulations outline the type of work that needs to comply with the Regulations, including major office and residential improvements when such work:
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constitutes a change in a thermal element or energy status
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builds over any drain or sewage
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is done in building to which The Regulatory Reform (Fire Safety) Order 2005 applies
Andrew Pierce, CEO at LLC Attorney, emphasises the need to secure the necessary permits before any construction, whether you’re in the US or the UK: ‘Most property renovations, especially huge scale ones, need permits from local authorities as they may affect the quality of living of the community if laws and procedures are not followed. If you are unsure if your project needs specific permits, it’s best to communicate with your local authorities to avoid legal issues and incurring penalties later on.’
Avoid personalised renovations
Stephan Baldwin, Founder of Assisted Living, says: ‘Because investment properties need to attract the general public, it’s best to avoid personalised renovations to properties made for rent as it may deter good tenants from occupying your property.’
What may seem attractive and unique to you may not be the case for your tenants, so take into consideration that tenants will most likely prefer functional renovations and pieces, instead of ornate ones. For example, avoid:
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over-the-top lighting fixtures
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luxury bathrooms
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unnecessary luxury pieces
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extremely high-end kitchens
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brightly coloured rooms and spaces
Shawn Plummer, CEO at The Annuity Expert, says, ‘Property renovations are costly investments, so it’s important to be smart on where you’re spending your money. Doing this will save you costs from spending on unnecessary expensive items, and help you switch to more functional pieces as value-adding items for your property - improving the quality of life and protection of your tenants.’
Treat your neighbours with respect to avoid legal hassles
A major property renovation is not only a personal concern, but a public one as well because noise, nuisance and damages from construction can cause heavy public disturbance without proper notice. Moreover, renovation works at or near the edge of your property may cause structural or practical issues for your immediate neighbours.
It is for these reasons that the Party Wall etc. Act 1996 was implemented in England and Wales to protect the rights of a neighbour with a shared property boundary (a party wall) who is going to be affected by construction. Simply put, this Act requires the property owner doing the work to issue appropriate notice and to obtain consent from the neighbour for the planned construction to avoid legal ramifications in case of complaints or damage to property.
Time to get started
Renovating a property for profit should come after careful thinking and consideration of the challenges you’ll face along the way - costs, permits, marketability and potential. Property renovations, especially those for profit, are significant investments you cannot undo and ones that will incur higher costs as time goes by. For that reason, it is very important that you ensure the significant earning potential of your property before renovation and find ways to lower the cost to maximise your profits.
Once you’ve got your property renovated and set to market, you can use Rocket Lawyer’s suite of residential property documents to take care of the legal aspects, such as making sure you have a solid Tenancy agreement in place.
