You might find yourself disappointed if you’re thinking of getting a major renovation to pay off immediately in terms of improved resale value on your rental property. While a project’s return on investment varies for each particular rental property, a series of studies done annually by Remodeling magazine indicates that the odds of merely breaking even are definitely against you.

ROI for Renovations on Single Family Rental Housing

Property Management Companies in Blacktown can be one of the best resources for discovering if a renovation is at all necessary. Often they come with their own ideas about creating improved ROI for the property owners. The immediate cost of improvements and renovation projects is often not justified by the resale value added. In fact, nearly all of the projects listed for single family homes in the 2015 Cost vs. Value Report from Remodeling magazine are overall money losers.

get-better-roi-from-property-management

Here are some of the average returns on investment for projects to renovate and improve single-family rentals in the mid-range price bracket:

Remodeling home office – Average of 50 cents on the dollar recouped

Adding master suite – Average of 62 cents on the dollar recouped

Remodeling basement – Average of 73 cents on the dollar recouped

Adding attic bedroom – Average of 77 cents on the dollar recouped

Minorly remodeling kitchen – Average of 79 cents on the dollar recouped

Adding deck – Average of 80 cents on the dollar recouped

Returns on investment for upscale homes are similar, according to the magazine. For years the Cost vs. Value Report has reported consistent findings in that nearly every remodeling project in single-family homes is a money loser as far as immediate resale is concerned.

In the 2015 report, the only project that broke even on average was adding a new steel entry door. In previous years, installation of a brand new garage door also broke even.

It’s important to remember that these ROI numbers only use the relatively narrow viewpoint of real estate flippers. Most owners of rental property undergo these renovations not for personal profit but rather for personal enjoyment. For this reason, it can be very helpful to ask Blacktown professional property managers for their opinion on whether your rental property would benefit from a renovation.

ROI on Renovations for Multifamily Rental Housing

One Property Manager in Blacktown took a recent look at renovation projects and improvements from a rental property investment perspective. Owners of multifamily rental real estate gain no personal benefit from renovations, after all: They benefit only if the renovations make the property more rentable with fewer vacancies, higher rents, or a better class of tenant.

Reasonable and intelligent rental property owners generally expect a return of 10 to 30 percent on their initial investments when considering renovation projects. While national data can be hard to find for renovations on multifamily rental housing, Multifamily Executive has reported that the best ROI generators generally include the following:

  • Kitchen upgrades
  • Better interior lighting
  • Wood floors

Advice from the Property Management Companies in Blacktown: Rehabs and remodels are not permanent. If you gain an extra $50 in rent each month by investing $5,000 in upgraded kitchen appliances for the kitchen in your rental property, you’ll be making 10 percent ROI. You’ll also be able to make rent increases larger in the future. On the other hand, you’ll need to spend more money replacing those appliances all over again in the future when the time comes. When you make your ROI calculations, ake sure you take into account normal wear-and-tear and the eventual need to replace or upgrade your improvements.

Don’t forget Time Value of Money!

Always keep in mind your “hurdle rate,” or target ROI, as well as the time value of money when you’re calculating the break-even points on the rental property improvement and renovation projects that you’re considering.

Remember that any owner of rental properties who has a few thousand extra dollars to invest also has about a million other investment possibilities available in addition to making improvements on their existing properties. For that reason, it’s imperative to keep opportunity costs in mind; to make your prospective improvement projects and renovations worthwhile, you’ll need to have a hefty projected ROI.

Of course, if you neglect to make necessary repairs, prospective tenants could choose to rent better-maintained and more modern houses, leaving your rental property vacant for extended periods of time. The impact of that on your rental income could be quite detrimental.

According to the majority of residential rental property management companies in Blacktown, the bottom line is that you need to be extremely careful about committing large amounts of cash to any project, even if conventional wisdom would have you believe the project is a slam dunk. Remodeling just for the sake of doing it can cost you quite a bit more than any extra income you’ll get from the improvements!

A final word of advice:

If this discussion about rental renovations, ROI, break-even points, and opportunity costs is making you dizzy, you might benefit from contacting a professional property management company.

Hilton Parkes Real Estate can help you with all your most-hated aspects of managing rental properties, from tenant disputes and missing rent, handling all kinds of late-night housing emergencies, giving advice on landlord-tenant law, and even taking care of maintenance tasks from the routine fixes to major renovations.

Call us at 02 9832 3211 to get expert advice on your rental property renovations and improvements.