Smart Upgrades
Leverage Renovations to Maximize Your SFR Investment Value
By Doug Ellis
Renovations can enhance a home’s value, but owners and operators of single-family rentals (SFRs) have special considerations.
If you are thinking about a renovation, it is important to determine your goals for the project. For example, are you hoping to increase your monthly rent, attract quality tenants, reduce turnover or decrease long-term maintenance costs? Because beyond their inherent costs, rental renovations require properties to be vacant, which cuts into your return.
So, when does a renovation make sense for your SFR and what do you need to know about renovations? Here are a few key observations from MCS’s team of reno experts to consider as you decide if renovating a rental property makes sense for you.
When Renovating a Rental Property Makes Sense
Because renovations can be costly and may not provide an immediate return on investment, SFR renovations may not always be a priority. There are two key times when renovating can make sense:
At acquisition
The best time for rental renovations is typically when the property is first purchased. Newly acquired SFR properties may need updating to attract quality tenants or to achieve target rents, so renovating properties as needed when you add them to your portfolio may make the most financial sense.
At the end of a holding cycle
Depending on whether you are on a five- or 10-year holding cycle, hitting this milestone could be the right time for rental renovation. If a property is still in good condition at the end of your first cycle and you want to hold on to it, this can be a good time for renovating a rental property. In this case, your renovation could include making updates that are in line with market demands as well as replacing bigger-ticket items that were not included in the initial renovation.
What about during tenant turns? This might seem like an optimum time for a large renovation. But when a tenant moves out, repairing damage, patching holes and updating only the essentials is more likely to get you the most bang for your investment buck because it enables you to get the next paying renter into the property as quickly as possible.
That said, tenant turns can be a prime opportunity to review major appliances for age and/or issues and to replace and standardize products across your portfolio.
Upgrades That Can Lower Your Maintenance Costs
The focus of rental renovation is often on cosmetic elements, but replacing larger mechanical items can help reduce the costs to maintain your property. For example, if your air conditioning, refrigerator or water heater are within a few years of their life expectancy at acquisition, it can be a good time to proactively replace them.
This tends to be the case for sump pumps in newly acquired properties as well, because you often will not know how long one has been there or how it has been maintained. Replacing aluminum wiring in older homes with copper (to reduce fire hazards) is another common upgrade. There are also smaller fixes to consider, from replacing wax rings on toilets to smoke detectors and/or their batteries to switching to energy-efficient light bulbs throughout the property. To help ensure you maximize energy efficiency and your investment, consider starting with an energy audit to see where you stand.
Rental Renovation Essentials: Scope Levels and Value-Adds
When you do decide to renovate your SFR, keep in mind two things: the scope level for your property and the value-adds that an SFR property services partner can provide.
Renovation scope levels
Most of the time, you as the owner/operator will determine the scope of the renovation, providing your services partner with basic guidelines (a knowledgeable renovation partner can help with scoping or make recommendations if you need it). Your scope should include room-by-room aesthetic and mechanical checks (with photos included) for potentially required upgrades, such as flooring, lighting, paint, plumbing, electricity and HVAC.
Be as detailed as possible to ensure all your requirements are addressed in the pricing and bidding process. Any safety hazards should also be identified and remedied.
Value-Adds from Your Partner
An experienced SFR property services partner like MCS can help you get the most value from your investment while staying within your budget. For example, your partner can assist with things like:
» Value engineering // Our team of experts is trained in value engineering your renovation project. By thoroughly evaluating your properties to consider the cost/value ratio for various potential renovation options, MCS works to provide the best performance and appearance for the least amount of investment.
» Data collection // Having a database that catalogs the fixed assets within each home you own, with details like each item’s age and service date records, is essential not just for renovations but for general property maintenance. Without this information and the related checks, you are more likely to end up with expensive capital investment repairs and replacements later. By tracking appliances and major systems within your properties for you, our team can alert you regarding potential issues that could impact your investment.
» Ongoing maintenance // Having a trusted SFR partner like MCS manage your maintenance needs means multiple small and large maintenance considerations (and managing their timing) are off your list, from smart home installations to changing out batteries in smoke detectors or carbon monoxide units to replacing HVAC filters. We can also help you build a proactive preventive maintenance plan so these checks do not get missed.
Having a plan in place can reduce or prevent potential repairs, extend the lifespan of your mechanicals, and provide data you can use to make decisions regarding capital-investment replacement and preventive maintenance schedules.
» Occupancy checks // During a tenant turn or an acquisition renovation, as your provider, we can help secure your property via regular occupancy checks to ensure no one has illegally moved into the vacant home until it is tenant-ready again.
Depending on the state of your SFR properties at the time of acquisition, a renovation may be a smart move to help attract your target renter and ensure the rental income you expect for that property. But in many cases, simpler, less expensive investments could be a smarter choice.
Once you determine the goal of your SFR renovation, a partner like MCS can help you accomplish all the upgrades on your list efficiently and on budget.
