In years gone past, property investors of various means and from varying backgrounds were united in one over-riding belief: that real estate would always, eventually, increase in value.
But times, they are a-changing. Gone are the days when investors could blindly believe that the homes in their portfolio will grow in value every seven to 10 years, give or take. In certain markets, some property values have barely moved in a decade – or worse, they’ve gone backwards. However, there are many ways to ‘force’ growth on your property, even if the surrounding markets are stagnating. One such strategy that many investors use to create instant equity is through smart renovations.
Improving a run-down investment property increases the rent and increases the appeal to tenants. More importantly, it ‘manufactures’ instant equity. By spending $30,000 wisely, one can increase the value of a property by approximately $50 to $70,000.
According to Canadian Real Estate Wealth Magazine there are 10 ways you can go about it.
1. Enhance curb appeal
Marcel Greaux, founder of the Toronto Real Estate Club, says that the initial appearance of a property is going to be the first thing to look at in terms of value.
According to HGTV, an average of 33% would-be buyers are more likely to buy a recently renovated home. Keeping it practical and presentable is the key to making yours stand out from the crowd, particularly in tight markets or amid uncertain market conditions.
“The simplest way a landlord can boost their curb appeal is simply by making sure everything is neat and tidy, making sure that your garden lines are tight, there are no dead plants out front and making sure that everything is looking as good as it can in a cost-effective way.”
Ottawa-based investor Kim Love agrees that simple changes can make a big improvement to the look and feel of a property, but they do not necessarily have to be expensive. “Curb appeal is huge. If you walk up to a front door and get an icky feeling, that’s it!” she says.
2. Add space
Increasing the square footage in your property is guaranteed to add instant value to your investment property. From a cost versus value perspective, it is an affordable upgrade to undertake.
Tom Zhang, CEO of Flying Stone Canada Ltd. added a spare bedroom and rented it out for more than $500 a month.
“We spent $4,000 and easily put in an additional room, and rented it for $700 per month, or $8,400 per year,” he says. “In twelve months that is double the return.”
It is important to pick your target market when converting space or advertising it for rent. This can determine whether your space is better presented to an appraiser, tenant or buyer as office space, a play room, a gym or a study.
If you don’t have a separate garage area, Greaux says making modifications to the existing square footage in the house can be simple and effective.
“Open concept is pretty popular, and that can be simple enough,” he says.
That said, when adding rooms or separations to a house, investors should be mindful of the neighbourhood, as what adds value to a property in one neighbourhood may work against an appraisal in another.
3. Redo the basement
Finishing a basement makes a marked improvement to an investment property. “Whether you plan to hold and rent or fix and flip, some light treatment such as improvements to electricity, drywall and paint can make a big difference,” says Love.
The basement can be used as another bedroom, a playroom or living space, or adding a legal suite can boost the property value exponentially. However, like adding space within the main floors, adding a basement suite can sometimes devalue a property if it’s not done in the right area.
Tom Zhang found an area in which he was able to add one, and spent between $25,000 and $30,000 renovating a suite. “That suite alone will give me additional cash flow of $1200 to $1500 per month,” he says. “If you do the math, my initial investment has come back to me within two years. The rest is pure income, and the resale value is higher. That’s the way I look at it – any renovation should increase both equity and cash flow.”
4. Improve the roof
When it comes to increasing equity, new roofing plays an important part.
“New roofing is probably one of the most expensive items for a home,” says Greaux. “If you’ve just put a new one on, that is definitely something you want to showcase in your listing because you’ll undoubtedly get more for it.”
From an aesthetic, structural and architectural standpoint, it is a must – especially for older homes. In addition to adding to the curb appeal of a property, buyers also get piece of mind knowing there will be no hidden leaks or repairs needed further down the road. Comparing an appraisal on a property with old, damaged shingles versus a new sturdy renovation, the ROI is palpable.
5. Improve the bathroom
Love credits small improvements over large renovations to boosting the value of a bathroom.
Updated light fixtures, mirrors or vanities and new faucets are inexpensive ways to add value – bigger does not always equal better.
“When you start getting into countertops and tubs, that’s where it stars to get pricey,” says Peniuk. “Dollar for dollar, it won’t necessarily push the value up as much. Those are things that should be replaced if they need to be replaced, not necessarily to push the value up.”
6. Focus on the small details
Little details can make a big difference. Making sure door knobs, light switch plates, trim and baseboards are clean and functioning are simple enough changes to make, and can still make a difference to property value. The details behind the scenes, however, should not be ignored. When it comes to a property appraisal, out of sight is not necessarily out of mind.
“Anything to do with your furnace, hot water heater, ampage and plumbing, these are definite value-adds that any appraiser is going to come through and see and receive positively if they’re in good condition,” says Greaux. “All those are going to be ticked off by the appraiser to make sure they’re in working order and from a lifespan perspective. From a Realtor perspective, they’re looking at it from a marketability perspective – how much can they sell it for?”
But when it comes to perhaps the easiest equity boost, paint goes a long way. For those unafraid of a little DIY, this is a simple way to skip labour costs, improve property value and save on products and tools. “Paint gives a house the feeling of clean and fresh, and it’s only around $100 or $200 to do, especially with the paints now that combine paint with the primer right in it,” says Love.
Greaux encourages investors to look at small additions that will boost property value as well as cash flow. Adding a washer/dryer combo to a unit, for example, can command another $100 to $150 per month in rent. Adding parking can be as high as $200 a month.
7. Update the flooring
Like expensive bathroom renovations, updating flooring does not have to be done unless there is something visibly wrong with it. Peniuk advises investors to consider the overall finished look of a property before making the decision to move forward.
Like painting, handy investors can use their own skill to bypass labour costs and use substitute hardwoods, such as laminate. For those cautious about overextending budget in an income property, materials such as this can be found on sale for as little as $0.99 to $1.29 per square foot.
8. Upgrade the insulation
Sometimes it’s the structural improvements that add the most value to your property over the aesthetic ones. Insulation and vapour barriers may not do as much for a property’s face value as a new kitchen or loft conversion, but the money saved on energy bills will be a short-term benefit, and can help leverage a higher asking price for both rent and resale value down the line.
High heating and cooling costs, uneven and uncomfortable heating levels and mould will drive away prospective buyers. The insulation of a property is assessed using R-values. The higher the R-value, the less energy lost through walls, ceilings and floors. It is estimated that 30 per cent of energy is lost through windows, so ensuring property insulation here is equally as important. Whether you go the DIY route or choose professional insulation installation, adding it is an instant appraisal booster at an affordable cost.
Letting in as much natural light to a property as possible – particularly in common areas or units such as the basement – make a big difference to a property’s value, as will improvements to the artificial lighting in the home.
Increasing the energy efficiency will improve the overall feel, which can be crucial during a viewing. For a little sweat equity, replacing the lights in the house can modernize it, brighten it and, if outfitted with energy-efficient bulbs, can cut down electricity costs too.
10. Outdoor space
Converting a yard covered in weeds, debris, old rusting patio furniture and creating a liveable outdoor space can instantly increase property value. And, like basic curb appeal, landscaping full outdoor areas or patios does not have to be pricey. Adding something like a basic deck is an instant value-booster, but opting to put additional features such as fire pits, benches, BBQs and water features can drastically alter the look, feel and worth of an investment property.
This article appeared in the May 2014 issue of Canadian Real Estate Wealth. For a full version of this article please click on the following link. Top 10 Ways to Create Instant Equity.
John Colella | Sales Representative
CENTURY 21 Miller Real Estate Ltd.
Brokerage, Independently Owned and Operated
467 Speers Rd., Oakville
Ontario, L6K 3S4
Direct Line: 905.464.0088 | Fax: 905.845.7674 E-Mail: John.Colella@Century21.ca
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