Five things to consider before renovating your rental

Posted 9 Aug

by Carrie Metcalfe on Aug 09, 2024
Article appears under: Property Management, Renovate to Rent Blog, Renovations and Maintenance

1. Will the renovations require termination of the tenancy?

If you already have a tenant in place, consideration needs to be given to how the tenancy will be managed while the renovations are taking place. For substantial renovations, it may be best to give notice to terminate the tenancy, as projects happen a lot faster and safer without having to work around tenants!

For less substantial renovations, you can offer tenants a rent discount to compensate for the disturbance, or supermarket vouchers.

2. What is my projected return?

Talk to a property manager to get a projected post-renovation. This is easier if you can supply working plans and a good description of the appliances you plan to install, such as induction cooktops and new heat pumps.

If you need to terminate a tenancy to upgrade the property, consider...

1. The costs of marketing and tenanting your property (letting fee) and...
2. That marketing photos may not be possible until the work is completed and...
3. That it may not be safe to run open homes until the worksite is closed and...
4. A tenant might need to give notice at their current rental property to move in (28 days).

While we are proactive at marketing a renovated property early to minimize vacant time, we recommend that you consider #4 above and as a worst-case scenario allow 4-6 weeks to advertise, run open homes, vet applications, and for folks to fully move in.

3. Why are you doing this?

There are four main reasons to renovate a rental property:

1. To increase rental income (cash flow)
2. To increase the value of the property (equity)
3. To solve a problem that would prevent it from being rented (healthy homes compliance or repairs)
4. You want to sell the property

What you want from a renovation should dictate what you undertake, so consider carefully if your renovations will maxmise your ROI.

If you have not had chattels valued for depreciation, then we suggest contacting VALUIT before you undertake any renovations, so you can maximise the benefits of chattels depreciation.

4.  Does the work require consent?

A recent project iRentProperty has been involved with aimed to separate a three-bed and two-bathroom property into a two-bedroom and one-bedroom property, each separately rentable.

This didn’t require resource consent under the current rules in place in Rotorua, HOWEVER it needed building consent (firewall, plumbing etc).

Design and consent costs can add up quickly AND they add extra weeks to a project, so it pays to get your head around this at the start of the project and understand your total spend and timeline.

5. Are you leaving money on the table?

In previous years we’ve been contacted by clients wanting us to project manage ‘like for like’ renovations. This is generally where a property is renovated cosmetically, without modifying the layout.

In some instances, we’ve been able to get a result for investors beyond what they have envisioned by adding non-load-bearing walls to create extra bedrooms, or completing other modifications that have substantially increased yield without adding too much to the project costs.