The Process of Reevaluating Rental Price After Renovations
Owning rental property can be a great way to generate a steady income, but sometimes updating and renovating the property can greatly enhance the value of the home. Reevaluating the rental price after renovations is a process that landlords should go through to ensure they’re getting the best return on any investment they’ve made in the property. Whether it’s a few minor updates or a more substantial overhaul, reevaluating the rental price is a crucial step in the process of becoming the most successful landlord you can be.
What to Consider When Reevaluating After Renovations
If you’ve invested in a property for use as a rental, reevaluating the rental price after renovations is important to ensure you are receiving a return on your investment. There are a few factors to consider when determining your new rate – size of the unit, the local market and any improvements that have been made.
The Size of the Unit
The size of the unit is a large factor when it comes to pricing your rental. If the unit has been expanded or has an added room, the rent you should charge should, in general, increase to reflect the larger space. If you have an old handful of one-bedroom units but updated it to double that amount, then it’s likely that you should go up slightly in rent for the newly renovated properties.
The Local Market
When determining the rental rate, you should also factor in the local market. If the market is hot and properties are moving fast and at a high price point, then you can adjust your rate accordingly and likely even pull in more than when you started. If the market is slower, then you may need to adjust your rent rate down or consider other ways to incentivize potential tenants.
Improvements
When you’ve made substantial improvements to your property you will generally be able to reflect those changes in the rental rate. Whether you’ve added new appliances, complete a renovation of the interior, or even upgraded the electrical and plumbing, all of these changes should be reflected in the rental rate.
The Benefits of Adjusting Rental Prices
If you have made changes to the property that are substantial enough to rate a change to your rental rate, there are a number of perks that can come from adjusting the rate.
Higher ROI
The key benefit for landlords who are looking to reevaluate the rental price after renovations is that they are likely to end up with a higher return on investment. By adjusting the rate for tenants after a renovation, you are essentially profiting from your investment twice – once in raised rent revenues, and again in capital improvements for the property.
Competitive Rate
Another key perk that comes with adjusting your rental rate after important renovations is that you’re able to keep your property competitive with the other local properties. The last thing you want is for your rental to be left behind while similar properties in the area are capturing more of the market. Adjusting your rental rate after improvements is one way to guarantee that you stay competitive.
Questions to Ask Before Reevaluating
Before you go ahead and adjust your rental rate, there are a few key questions that you want to ask first in order to make sure that it’s the best decision for your property.
What is the Rent Cap in the Local Market?
Before you go ahead and set a new rental rate, you should ask yourself what the rent cap is in the area where your property is located. If you price yourself out of the local market by setting a rate that is too high, then your rental unit may end up sitting empty and you may not be able to receive a return on your investment.
How Long Will it Take to Recoup the Cost of Your Renovations?
Before adjusting your rental rate, it’s important to ask yourself how long it will take you to recoup the cost of your renovations. This is especially true if the renovations were extensive and costly. If it’s going to take several months or even years to break even, then it may be wise to wait until the market is more favorable before raising your rental rate.
The Bottom Line
When it comes to reevaluating the rental price after renovations, it’s important to consider all the factors involved. The size of the unit, the local market and any improvements that have been made, are all important factors to consider when reevaluating your rental rate. That said, it’s also important to ensure that you are not pricing yourself out of the local market and that you have enough time to recoup the cost of your renovations. Keeping these factors in mind when reevaluating your rental rate is a great way to become a successful and profitable landlord.
Conclusion
Reevaluating the rental price after renovations is an important part of being a landlord and can greatly increase your returns on investment. Consider the size of the unit, the local market and improvements that have been made when determining the rental rate and ensure that you are not pricing yourself out of the market. By following this process you can make sure that you’re maximizing your investment and becoming the best landlord that you can be.
What are the benefits of reevaluating rental prices after renovations?
1. Increased rental income: Reevaluating rental prices after renovations can help the owner/property manager to maximize the rental income from tenants.
2. Improved property value: Renters are willing to pay more for better condition properties. A higher rental rate can substantially increase the value of the property.
3. Increased tenant satisfaction: When tenants are provided with renovated units, it often leads to an increased satisfaction level for them. And when the rental price is also updated to correspond with the upgraded units, they are more likely to be content with their living arrangement.
4. Reduced vacancy rates: By making the property competitive in the market with upgraded units and appropriate rental rates, the vacancy rates for the rental unit can be reduced significantly. This helps the owner/property manager recoup their investment faster.
5. Additional tax benefit: When the rental amount is increased due to the renovations, the owner/property manager also gets a lower annual tax rate on rental income. This is because the tax rate is directly proportionate to the rental income.
What are the risks of not reevaluating rental prices after renovations?
1. Inadequate Return on Investment: If you don’t adjust your rental prices after renovations, you may not recoup your costs. This means you will not see a financial benefit from the investment in renovation costs.
2. Potential Loss of Tenant: If you don’t raise your rental prices to reflect renovations, tenants may be tempted to move to a similar property with more attractive rental rates.
3. Rebutting Comparable Properties: Potentially prospective tenants may compare your property to one that has recently undergone renovations and determined your rental rates are too high. This may cause you to miss out on a potential tenant.
4. Discourages Effort to Improve Property: When property owners are not able to reap the financial rewards of renovations, it can stop being productive and realizing return on investment.
5. Reduces Tenant Satisfaction: If a rental property does not keep up with the competition and renovations, tenants may think the property is not being well-maintained. This can decrease their overall satisfaction with the property and your customer service.
What are the benefits of reevaluating rental prices after renovations?
1. Increase rental income: Reevaluating rental prices after renovations can help increase rental income by allowing landlords to adjust rental prices to reflect the increased value of the property.
2. Increase demand: Raising rents to reflect the post renovation value of the property can also help to create more demand for the rental unit amongst tenants.
3. Streamline budgeting: Making adjustments to the rental rate allows landlords to streamline their budgeting process since they’ll now have a better idea of how much income they’ll be able to derive from their newly renovated properties.
4. Properly reflect costs: By accounting for the cost of renovations, landlords will be able to ensure that the rent they charge tenants properly reflects the value of the property.
5. Market advantage: Adjusting the rental rates after renovations can give the property an edge in the competitive rental market, as tenants may be more interested in a property that is in good condition and one that offers up to date amenities.
