Mortgage rates are low and the market is bouncing back somewhat. So real estate investors, whether it’s fix and flippers or those investing in rental properties, are returning in big numbers. As a Russ Lyon Sotheby’s Scottsdale agent, I witness firsthand how some buyers go overboard on what they spend on renovations. Many times, buyers don’t get the return on their investment. If you’re smart, you can still renovate but not overspend.
Before starting any renovation project, think about the financial impact renovations can have on a property. I know at Sotheby’s Scottsdale that any updating you do on a property can impact “rental rates, vacancy and the long-term performance of your investment property.” Here are a few things to consider before renovating:
Does the property meet code?
A good reason to renovate is so your property can meet municipal and building code standards. At Sotheby’s Scottsdale, I would want to know if I could legally lease my new investment. If a home is not up to standards to live in or doesn’t have an occupancy certificate, then you’ll need to make some improvements in order to rent or sell it. Keep in mind, laws and building codes might have changed since the property was built.
Does the home fit in with others in the neighborhood?
If a home is outdated and doesn’t look like others in the community, you’ll definitely want to make renovations. Otherwise, you might not find a tenant willing to pay as much for the house or in rent as you’d like. By making improvements consistent with other nearby homes, you’ll be able to get top dollar. But don’t go overboard because not all money spent on improvements can push rents up or even the overall cost of the home.
Consider what the Return On Investment will be.
Before doing any renovations, only do ones that yield at least 20 percent in initial annual return and have a long enough lifespan to last beyond the initial cost. Bottom line, you want to weigh the costs against the benefits.
Another thing you need to think about is who your next renter or owner will be. At Sotheby’s Scottsdale, I have a good idea what buyers and renters are looking for in a home. By spending money on renovations that are not important to the buyer or renter, you run the risk of losing money and lowering your equity.
If you or anyone you know is interested in Scottsdale Real Estate, please check out my Sotheby’s Scottsdale website, www.Realestateforsaleinaz.com, and I’ll be happy to help.
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