Property Expert Nick Statman weighs in on Avoiding home modernisation mistakes.
We all want our investment properties to look their best. We want to make upgrades and improvements that not only improve the aesthetics of the home but also increase its value. Improving your property can be helpful to maximize ROI, but over-improving could cost you.
What Is Overimproving?
Over-improving occurs when you put more money into a home than you’ll be able to get out of it. Improvements, amenities, and upgrades play just a small role in the value of your home. You can put thousands of pounds worth of upgrades into a home, but the location and square footage still play a significant role in how much it is worth. And how much tenants will pay. When you over-improve, the amount of money you’re putting into the property is not proportionately impacting the value of the home.
How To Avoid It
The goal for any property investor is to figure out how to make the improvements that generate the largest return without exceeding the neighborhood threshold. If your goal is to maximize your ROI and get more money out of your investment than you put in, keep these things in mind when improving and upgrading your investment property:
Keep an eye on comparable properties
Your guide to maximizing your ROI and getting the most out of your investment might be right next door. One way to avoid over-improving is to keep an eye on comparable properties in your area. Find properties that are similar to yours in age, location, and square footage. The price buyers are willing to pay for these properties is close to what you should expect from yours, even if you end up spending thousands of pounds on upgrades.
Make the right improvements
Every improvement that you make should work to increase the value of the home. Just because you spend money on an improvement doesn’t mean it will drastically increase the value of the house. Upgrades that are considered standard home maintenance, such as buying a new roof or updating the plumbing systems, may make your home more appealing to tenants, but it won’t necessarily allow you to charge significantly more for rent. Improvements that are best for maximizing ROI include:
- Landscaping upgrades
- Investing in energy-efficient windows
- Adding an outdoor entertainment space
- A master bathroom update
- Bathroom remodel and
- Kitchen remodel.
To avoid over-improving your home, stick to the improvements that will not only improve the aesthetics of the home, but also maximize your return.
Be selective about finishes
Once you decide what improvements and upgrades you will be making, it is important to be particular about the finishes, appliances, and fixtures that you choose. For example, adding new countertops to a kitchen is a standard upgrade that goes a long way in changing the feel of a home. However, the type of materials you choose can impact how much the project costs altogether. Choose a universal material, like ceramic, stone, tile or man-made quartz instead of concrete or marble. You still give your kitchen an upgrade without going overboard. Tenants won’t pay more for a property just because you spent thousands of pounds on imported countertops.
If you love the look of hardwood floors, try bamboo, long-lasting laminate, vinyl planks, or cork for a more cost-effective way to get the same look. If you’re doing a bathroom remodel, look into using tile or wood for the countertops instead of granite or marble. If your kitchen could use updated cabinets, but it is not in the budget, look into giving your current cabinets a facelift with a fresh coat of paint.
Choosing inexpensive finishes will help you make the improvements without costing you in the long run. Remember, cost does not always equal value.
Keep the neighbourhood in mind
If you are thinking about adding square footage to your home, it is important to find balance. An extra bedroom or office space may be worth the cost, but if your home ends up being twice as big as the other homes in the area, it may stick out, and not in a good way.
Improvements that make your property drastically different than those around it could also backfire when it comes time to sell. If your property is in a neighbourhood of older homes, you don’t want to make improvements that make yours look out of place. Expert property investors recommend not raising your home’s value any higher than 10% of the average cost of homes in your neighbourhood.
Avoid Overpriced Homes
You can avoid over-improving a home before you even buy it. If you buy an overpriced home, you dramatically decrease your chances of seeing a significant return on any improvements that you make. When purchasing an investment property, do your best to pay what the property is worth or even better, below market value. This will give you a little wiggle room to spend money on improvements and still maximize your ROI.
Believe it or not, there is such a thing as making your home “too nice.” Depending on the location of your property and the current market status, over-improving could end up costing you money. It may be helpful to work with a property agent to help you determine the type of property to buy that will not require expensive upgrades to generate a return.
Avoid over-improving your home by being selective about finishes, doing careful market research and analysis, and being picky about the significant improvements you choose to make.
Read More from Nick Statman on Medium.com