Everyone wants to have an upgraded property with a high-end kitchen, a spacious drawing-room, and luxurious bathrooms. But as an investor you have to ask yourself, does the cost of renovating these spaces justify the returns?
The biggest mistake an investor makes when they decide to renovate is to over-renovate their property. You may have a picture in your head of what the house is going to look like after renovations, one which shows it in the best light and makes it stand out from the other houses in the neighborhood. But just because you envision it as great doesn’t mean it will translate to exactly as you want it in the real world or give better rentals.
So before you decide to change your floors or upgrade your veranda, as top real estate agents from IQI advice, make sure you ask yourself these 4 important questions.
1. Does it raise the value of your property?
Any renovation you choose to make is an investment in the property and it is with that mindset that you need to approach your renovation ideas. Ask yourself what returns will this upgrade bring and is it worth the initial cost?
2. How much are you willing to spend?
As you know, renovating a house may incur heavy cost. Make sure you have a clear understanding of just how much you are willing to spend on renovations. Also, you need to keep in mind additional costs such as building permits, cost of resources, the cost for electrical wiring and plumbing, and these can create a significant dent in your budget.
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3. How long will it take to recover the cost?
IQI, one of the best Real estate investment advisors in Malaysia advises that you should work out your return of investment early on. Experienced investors will ask themselves questions like, “If I spend RM 20K to extend my room, how long will it take me to make the money back?” You can work out the numbers by checking your current rental income for the property and then calculate how much more you can charge in rent with the added upgrade.
4. Is it really necessary?
Ask yourself, why are you doing this renovation? Is it because it is necessary or is it because you are tired of the current layout and want a change? Here is what experienced investor analysts from IQI advise:
Let’s say you are upgrading the flooring of an apartment whose current rent is RM 2000/month; you spend RM18, 000 to renovate the floor. An upgrade like that will only bring up the rental income by 5% max; that means after renovating the floor you can charge RM 2100/month i.e. an extra RM 100/month. This means that it will take you 15 years to earn back the money spent on renovations. Is it really worth it?
Renovating a property is a significant investment decision; one that requires careful thought, consideration, and calculations in order to ascertain that it is worth your while. It is important to get the right information in terms of cost and to do that you need to ask the right questions. While there are other considerations you need to take when deciding on renovations, these questions will help you make a more informed choice.
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