10 ways to Increase your rental return by renovating and upgrades
How exactly do you plan a rental renovation?
Planning a rental renovation is very different from renovation your home. A rental renovation is not an emotional investment where you consider the needs and wants of your family members. A rental renovation is all about investing your money in the right upgrades and renovations to get the maximum return on your investment.
You want to add value so you can get a better rental yield and also be able to resell it at a good profit. The materials you choose and the areas you renovate are considerably different from when you renovate your home. It is important to understand this difference so you do not over invest in your renovation.
In this article we will first discuss what exactly rental yield means. We will then discuss the reasons you should renovate your property and whether renovating is the right thing to do for your current finances.
Finally we discuss in depth the 10 different ways that you can add value to your home and most importantly how you can increase your rental yield.
Having the right plan is important before you invest into your rental property.
What exactly is rental yield?
If you are a property investor in Auckland, you are either looking at getting the maximum rental yield for your property or renovating to sell for a maximum return on investment. For the purpose of this article, we will be talking about ways in which investors across Auckland can maximise their rental yield.
Rental yield is one of the most important figures for any landlord. It is basically the rent that they can charge for their investment property. You cannot however charge any number that you desire. The rent a landlord can charge is always in proportion to the value of the property. This is easily explained with an example of a luxury two-bedroom apartment that can yield $900 per week
whereas another 2-bedroom apartment in need of some sprucing up might yield only $450.
At every stage of your investment, you will have to carefully consider your rental yield. What is your realistic rental income versus mortgage payments? Many lenders will require you to show that you can at least get 125% of your repayments in rental income.
Not every renovation is the same or as important to your tenants. Some types of renovations offer more rental value than other renovations. Kitchen and Bathroom renovations are the top two renovations to add value to your property.
However, exactly why do you need to renovate your rental property?
Why should I renovate my rental property?
So it is really worth renovating your rental property? The answer is yes. Even simple renovations to your rental property can bring higher quality tenants who are willing to pay more for a comfortable modern home. They want a home that is functional, has all the modern amenities and is easy to clean and maintain.
Differentiate your property from other competitors by putting some thought into your renovation. Make it attractive for potential tenants and for future buyers.
Expert Tip: Do not renovate your rental property as you would your home. When you are renovating your home, you personalise your renovations according to your taste. However, your taste could be vastly different from your renter’s or buyer’s taste. If you personalise your property, then it could put a potential renter or buyer off the property.
When renovating to rent, choose materials that are easy to clean and maintain. This will make life easier for tenants but more importantly it will ensure that you have lesser wear and tear. Do not choose the most expensive hardwood flooring because you love it. Instead choose laminate flooring to mimic hardwood floors which are of a great quality, easy to clean, and fantastic for your budget.
Reasons for renovating a rental property
- Improve energy efficiency: Adding energy efficient appliances such as induction cook-top means lesser electricity bills for tenants as well as a great selling point when you plan to sell in the future
- Increase property value: By renovating in a thoughtful manner you could add value to your property which would attract higher rent or fetch a higher yield when you plan to sell the home.
- Improve renter satisfaction: Include good quality appliances for your renters. Good quality appliances such as dishwashers etc would mean that they will increase renter satisfaction and also there will be fewer fixes that you have to make throughout the tenancy.
Now how much is too much to spend on rental property renovations? Let’s look at budget planning for rental property renovations.
is renovating your rental the right thing to do financially?
Research is important when renovating either your home or investment property. But when you decide to renovate your investment property it is even more important to do some thorough research about the market. Your first step would be to see whether you are charging low, median or higher rent as compared to the average rent for similar properties. If you are charging below the median rent then getting the property renovated to add value would be a great idea. However, if you are already charging way above the median rent then renovating to add value would not be great return on investment.
Here are a few questions to think through:
- How much will the property cost to renovate?
- How much will it allow you to increase the rent if renovating?
- How long will it take for you to pay off your cost of renovation with your new rental increase?
- How much can you increase the rent of your property realistically for people to want to renovate your property.
Once you have conducted your research, it would be good to contact a renovation company for advice related to the areas that could renovated with the goal of adding value to your property.
Do your research and get several quotes from various companies compare them in terms of what they offer and the costs. Choose a company that can give you a fixed quote in order to avoid future budget blowouts. Also as this is your investment property, you do not want to spend too much time on the property managing things. Choose a company that can provide a Design to Build service while providing a project manager to over see the entire renovation from beginning to end.
10 Improvements to increase rental Value of your property
1. Minor upgrades to make the property comfortable
A lot of landlords see minor upgrades as an expense rather than a long-term investment. Experts suggest that keep the formula simple. Invest in small upgrades that add convenience to a tenant in order to attract a more interest for your property, higher quality tenants and better rental yield. In the long term you will more than make your money back. Following are a few minor upgrades to add convenience:
Adding a heat pumps are an energy efficient alternative to furnaces and air conditioning. Summers and Winters in NZ often require either fans or heaters. If you install a heat pump in your home, you are bound to differentiate your home and attract tenants that are willing to pay more for this convenience. You can either get single units for each room, multi-level split units for multiple rooms or ducted heat pumps for central heating. Moreover, central heating will add value to your home when you want to sell in the future.
A well-insulated house does not only provide health benefits but is also important to ensure the longevity of your property. A house that is not insulated will encourage the growth of black mould which is detrimental to the structure of your home. Black mould can seep into your walls and cause them to crack which in turn weakens the structure of the house.
Homes which are not insulated further deter good quality tenants and retainability of good ones. A home that is not insulated will not attract families as they can prove to be an unhealthy environment for families. Families usually are better tenants who will look after your home better that students etc.
Ensure the longevity of your property and increase rental yield by insulating your property. It should never be mistaken as an expense but an in investment.
BEFORE – Their roof above the kitchen was leaking so the client decided to first get that repaired and then eventually opted for a full kitchen renovation
AFTER – Kitchen renovated by using materials that were low maintenance, durable and easy to clean. Laminate floors, Acrylic cabinets and engineered stone benchtop used.
Make sure your electric wiring is in good shape
Having your electric wiring in good shop might not translate into higher rental yield but it should be something you should check regularly. If your electric wiring is old and you have not checked it in a few years then it would be good to get a professional to carry out an assessment to ensure that it is in good shape. Bad, damaged or old electric wiring could be detrimental to the safety of your home and tenants. The sure signs of bad or damaged wiring could be frequent bulb blow outs or a fire.
Gone are the days when a kitchen was a secluded room at the end of the house. Kitchen now is a very integral part of everyday living. Open plan kitchens are not just a trend but a way of living. Apart from structure and layout, easy to clean materials are a must if you want to attract good tenants and retain them. You should also use materials that are not hard to maintain such as hardwood flooring as you cannot guarantee whether your tenant will take good care of it.
Expert tip: Rental properties should never be renovated according to the owner’s personal taste. Too much personalisation can deter tenants as well as future buyers. When renovating an investment property use classic colours and low maintenance materials. Classic colours allow tenants as well as future tenants flexibility to mould the house to their tastes.
We have listed a few ways that you can get the most out of your kitchen renovation if you want to get a higher rental yield or add value to your kitchen.
- Flooring Use Laminate or Acrylic if you are redoing your kitchen floors. Laminate and acrylic flooring are low maintenance materials which are easy to clean and cost effective. They can imitate any other type of flooring in terms of texture and looks which make them a highly versatile material. Unlike most cost-effective solutions, they are also very highly durable which means that they increase the longevity of your kitchen floors. In case you do want to change this type of flooring in the future you can do so at a fraction of cost compared to hardwood flooring.
Property renovation in Avondale (West Auckland) – Laminate flooring to imitate hardwood flooring
- Cabinets and Drawers Changing or replacing your kitchen cabinets is a great way of refreshing the look of your kitchen. Most people think that it is cheaper to just change cabinet drawers rather than replacing the entire kitchen cabinet. This is far from the truth. This is because it is easier to manufacture entire kitchen cabinets rather than finding the right cabinet doors to fit your previous cabinet structure. The cost of manufacturing new kitchen cabinets, doors, drawers, drawer runners and shelving can range from $5,000 to $12,000 depending on the materials you choose as well as the size of your kitchen
It is also important to choose the right type of materials for your investment or rental property. Use Melteca for your kitchen cabinets to ensure durability and low maintenance compared real wood. Melteca is a highly versatile material which can imitate texture, look or colour of any other material. Melteca is also easy to clean and cost effective compared to real wood. This ensures longevity but is also easy to replace if you want to in the future due to low costs.
Kitchen renovation in West Harbour – Acrylic gloss finish cabinets custom built for low maintenance
- Open plan Layout – Open plan kitchens are not just a trend but a way of living in our society today. If your kitchen is secluded at the end of the house, then it would be a good idea to call a professional to see how you can incorporate it into the living space. Breaking a couple of walls that separate your kitchen from the living room will create an open floor living that will generate more interest and a higher rental yield for your home. This will also add more value to your home if you plan to re-sell in the future.
Kitchen renovation in Blockhouse Bay – Before walls were knocked down to make it an open plan space
Kitchen Renovation in Blockhouse Bay – After we knocked down the walls and made it into an open plan space
- Energy efficient solutions – Install an induction cooktop for a safer and energy efficient solution for your property. While it is not mandatory by law to have a dishwasher, it would prove to be a differentiating point in a competitive market to have one in your rental property.
Full rental renovation in Hillsborough – Induction cook-to installed in this rental property to add value
Bathrooms are the second most important thing that rentals and buyers look at after kitchens in a house. Bathroom renovations and upgrades add considerable value to a home and increase the rental yield of a house. Our project managers have put together a few things that you can upgrade in your bathroom to get a maximum return on your investment:
- Get your bathroom waterproofed, heated and well ventilated – Moisture is an enemy to your walls and structure. Professionally waterproofing and ventilating your bathroom will ensure the longevity of your property while adding comfort for your tenants. Waterproofing and ventilating your property will save you a considerable amount of money in the future in terms of damages.
Rental renovation in Hillsborough – We upgraded all fixtures and used low maintenance materials with minimum personalisation. This was an old and run down house but the owner wanted to renovate with the intention of charging above median rent.
BEFORE – Client replaced flooring, basin and shower to spruce up their Bathroom
AFTER – Changing of an old basin to a new one makes a world of a difference in a bathroom
- Installing new Fixtures – A bathroom with dated fixtures will hardly yield high rent or even a good price when you plan to sell your investment property. Update your dated bathtub for a modern shower to generate more interest for your rental property. Dilapidated bathrooms often deter tenants and buyers alike. Upgrade your toilet, vanity and bathtub in under $12,000 to increase the value of your property as well as rental yield.
Painting your house is a great cost-effective way of increasing the appeal of your property and preserving it. Painting a home increases the perceived value of a property which in turn increases its rental yield. Painting walls that have started looking drab will breathe a fresh life into your property which will attract a considerable amount of interest for renters and buyers alike.
Rental Property Upgrade – Before we painted the entire room
Rental Property upgrade – After we painted the room
If you have wallpapers on some of your walls, then this would be a good time to remove them and paint your walls. When you are renting out your property it is good to remember that you should be using solutions that will be able to sustain the most amount of wear and tear.
Exterior Painting in Greenhithe – Before we painted the exterior to add value to the property
Exterior Painting in Greenhithe – After we painted the exterior to add value to the property
Hence when painting your investment property, it would be a good idea to get it done with professionals and use oil-based paints. Oil based undercoats and paints are able to withstand a higher amount of wear and tear compared to water-based paints. Oil based paints are more expensive than water-based paints, but it will prove to be a better investment for your money and time.
5. Increase Curb Appeal
Aucklanders love to have an outdoor area where they can entertain family and friends during summer. Having a nice deck or outdoor area greatly increases the value of a property and also attracts higher interest from high quality renters. A nicely renovated outdoor area is the first impression your renter or buyers gets of your property.
Deck renovation in Cockle Bay – We replaced the old deck with a new one as it was dilapidated and unsafe for current use
Deck renovation in Cockle Bay – The property had a lot of unused area around the house so we created a large deck to add value and convenience for clients.
Hence it is a good idea to invest a little money on renovating your deck or patio to a good standard. Deck renovations are inexpensive and a great return on investment for your property whether you are looking at getting a higher rental yield or increasing the value of your property before selling.
6. Minor Landscaping
First impressions count when renters or buyers first see your property in Auckland’s competitive market. The right renters will care if your property is well maintained from the outside. Make sure you keep the garden mowed; the trees mowed and plant a few plants for some added exterior appeal to your property.
When it comes to selling your property, a well landscaped exterior can add between 5.5% to 12.5% to the overall price of your house. While interior design trends might fade, a garden only matures with age which adds additional value to your property. The best way to add value through landscaping is having a plan. An incoherent plan or landscaping can in fact deter tenants and buyers.
Come up with a plan before you start your landscaping project. Take some professional advice, do some research and then commence your project.
Carpets have traditionally been the choice of flooring for living areas of most Auckland homes. Carpets however are difficult to maintain and start to look stained and dirty quite easily. Before we renovate homes, we always ask our clients what their reason for renovating is. This is because this will greatly impact the type of flooring you choose as well as your budget.
As mentioned above, rental and investment properties should make use of low maintenance materials for their renovations. If you have a carpeted rental property which has started looking old and stained, then it is not going to generate much interest in the rental or even buyer’s market.
To increase rental yield, it would be a good idea to rip your old carpets and renovate your rooms with a good quality laminate flooring. Laminate flooring is low maintenance and highly durable which will extend the longevity of your floors. They are also cost effective which means that even if they get ruined during a bad tenancy, they will not be expensive to replace. They also come in various, colours, textures, and designs which means that you can make your rental property aesthetically beautiful generating higher interest.
8. Small Aesthetic changes
If you are unable to invest in upgrades or renovations for your property, then think about making small aesthetic changes to your property. We have put together a few inexpensive ideas that you can implement to differentiate your property from competitors.
- Replace old curtains and blinds with new ones to breathe a fresh life into your rooms. Old curtains can also make a room look shabby which is not what you want if you are looking for a higher rental yield.
- Change your old stove top for a newer one. Kitchen is on top of the list for most tenants when they go for a house viewing. If you do not want to invest in a full kitchen upgrade, then it would be a good idea to change a few things to make the most out of your investment. An old stove top will deter potential tenants. A good quality stove top will only cost you $500 but even a $10 increase in rent/week due to this would get a good return on investment. The most popular and efficient stoves today are induction ovens. You can also opt for gas depending on your preference.
- Change old taps in your bathrooms – Old yellowing and cracking bathroom tap-ware can deter tenants even if it might seem like a small thing. Spruce up your bathroom by changing all tap-ware in your bathroom without breaking the bank.
BEFORE – Client wanted to spruce up the bathroom by painting it and replacing the Bathtub.
AFTER – Replaced flooring + Bathtub + Taps and Painted the entire bathroom.
- Trim and Maintain your garden and landscaping to ensure that your property is in a good and presentable condition. First impressions matter so keep your exterior neat and tidy before viewings.
- Change your kitchen bench-tops from old Vinyl to engineered stone bench-top. This can instantly lift your kitchen up and notch and dramatically change its look. Engineered bench-tops are versatile in design and texture so you can play around with it to add to the aesthetics of your kitchen. Engineered stone is very cost effective, durable, easy to clean and will last you a very long time.
- Clean before your viewings. It pays to hire professional cleaner to make sure that your property is presented at its best light. Clean the windows, dispose off outside debris, wash the exterior of your home and clean the interiors to attract good tenants who will be willing to pay more for your property. The idea is to sell a dream to the renters of a place they can call a home. Polish your hardwood floors to add some more shine and glamour to your floors.
9. Furnish your home for expatriates as renters
Auckland has many expats living here who come to the country for a few years and then leave. They usually look for a stress-free tenancy which is mostly paid by the company. Their ample rent allows them the freedom to pick houses that are well maintained, aesthetically pleasing and furnished well.
We would not recommend you furnish your property if you do not want to invest much money into your rental. Most renters in Auckland do not want furnished houses as they already have their own or they do not want to pay more for a furnished house.
Property upgrade and Renovation in Glendowie – Client wanted to renovate to add value before either renting as a luxury apartment or even selling.
If you want to attract expats, then you must be able to invest a good sum of money into revamping it. Expats do not want to bother with the hassle of buying furniture as they would be moving in a few years. In saying that, they also will not compromise with a house that is garishly furnished or have inferior quality. This does not mean that you must carry out a full renovation and get the most expensive furniture.
The key is to furnish it with some good quality furniture and a house that is tastefully decorated. You can double your rental yield if you invest some money into upgrading and decorating your property. Tell your agent that you are aiming for expats and take some advice before you begin redecorating. You can get up to $1500 per week for a 2-bedroom home if you upgrade and decorate correctly. Some examples of such houses are luxury apartments in the CBD.
10. Add a dishwasher, washing machine and dryer
Installing a dishwasher, washing Machine and dryer are not mandatory by law but they add great comfort for renters. More and more people are looking for properties that will make their life better without any hassle. This is all about getting a higher rental yield that you are currently getting. What tenant will not pay more for a house that has three comforts compared to a house that doesn’t?
Also, remember that you are not competing with every house in the market but a market that is of your choosing. You want to attract renters that are good, will stay for a long time, can pay more and will keep your property in a good condition.
If you have any questions about upgrades to add value for better rental yield or explore other options then – feel free to get in touch with the team at Superior Property Services – 0800 199 888
Disclaimer: These cost estimates are based on quotes we’ve sent to past clients and jobs we’ve completed ourselves. This article is offered as a general guide only. The views and information expressed in this article are those of the authors and do not necessarily reflect the official policy or position of any agency in New Zealand. Any person who relies upon any matter contained in this guide does so entirely at their own risk.
Written by Superior Property Services