Guide to Property Renovation Introduction / Chapter 1
Do you own or manage any commercial or public properties? If you do, then you know how important it is to carefully maintain and perform upkeep on this property.
Why is this so important? It’s simple. Whether your property is an office building, retail space or other types of property tenants or businesses will use, the property only truly has value if other individuals are willing to work and set up their spaces there. You might own a large chunk of land with multiple buildings on it, but if the grounds are not maintained, and the buildings are falling down, the property will be worth nothing because no one will be willing to use it.
To attract tenants and clients, it’s of the utmost importance that your buildings look well-kept and up-to-date. In some cases, this is a simple matter of performing basic maintenance. This upkeep might include simple tasks like keeping the grass mowed, the bushes trimmed and the potholes in the parking lot filled, as well as keeping the ceiling from leaking, the lights from flickering and the common spaces well-cleaned. You might even hire a property manager as part of your team who can pay attention to these building needs for you.
In other cases, making your property look appealing may be more complex and require a bit more work. You may find yourself needing to invest in significant property renovations and landscaping.
How Does Property Renovation Attract New Clients?
Imagine yourself as the prospective client or tenant. You’re looking for a place to house your new business, office or organization, and there are several potential pieces of property to choose from. You would visit each piece of property and look at things like the size, the layout and the price tag. You would also look for the property with the newest, most attractive and most functional spaces. You would look for the property that was the most up-to-date.
“There are certain standards that are almost mandatory, even in older commercial buildings,” advised Frank Dillow, a senior commercial broker with Long & Foster Commercial Division in Vienna, Virginia. “Certainly if the building is not handicap accessible, it decreases its value, but the access is important to be attractive and discrete, not just some ramp appended to the entrance. Also the parking should be attractively laid out and landscaped. Obviously, the entrance to the building is important. As they say ‘you only have one chance to make a first impression,’ and if the main entrance to the building is not attractive the first impression is not positive.”
Property renovations can make your property the one that fits these criteria. By putting a little time and money into a renovation project, you can help your property become the newest-looking and most attractive option around.
How Does Property Renovation Increase Earning Potential for Business Owners?
By renovating your property and making it the very best it can be, you increase your earning potential. If you make your space the best choice out of all the other options in the vicinity, clients and tenants will be willing to pay you slightly more. This means by putting in a little extra money up front, you create an opportunity for a greater pay-out over time.
The property renovation cost might seem high, especially at first, but it’s helpful to think of it in terms of your return on investment, or ROI. The ROI of property renovation will almost always turn out in your favor, as the property owner. We asked Robin Amato from Real Estate III Commercial Properties and CAAR Commercial Council Chair if sellers often make their money back on property renovations if doing so for the purpose of selling at a higher price and she said: “Yes, they do. Without it, buyers negotiate at a much lower price.”
In this way, property renovations create profits for you.
How Does Property Renovation Increase Property Value?
More up-to-date buildings and facilities are worth more, and that is a simple fact. Because people will be willing to pay a higher price to use the buildings, they can be bought and sold at higher prices. This means if you’re ever interested in selling your building down the road, you’ll be able to sell a renovated property at a higher price than if it had not been renovated.
“In the commercial market right now the main drivers are new construction and nearness to Metro,” Dillow included. “For the past several years in Northern Virginia those buildings have done quite well. It’s the older buildings, not near a Metro, and not offering a mixed use opportunity for tenants or owners to work, play and live at the location that have suffered. With those buildings the vacancy rates are much higher and they tend to languish on the market longer, leaving the owners with less dollars to invest in upgrades. To make them more appealing to buyers or tenants, issues like landscaping and an attractive ambiance make it extremely important to lease or sell them at all.”
Property Renovation vs. New Construction
If it’s so important to have an updated building, why should you renovate an older building at all? Why not start from scratch and build an entirely new one?
The answer, again, comes down the ROI. Sometimes it’s worthwhile to build a new building. More often, it’s more cost-effective and makes more sense to simply renovate and re-landscape a relatively good existing building and property.
Learn More About Property Renovation
Property renovations are worthwhile and can help make your property more attractive to clients, generate a high return on investment for you and increase your property value.
There’s much more to property renovations than simply learning why they’re a good idea. By reading through this guide, you’ll learn more about how to plan renovations, execute them and so much more.
Chapter 1: What Is Property Renovation?
To renovate means to restore something to a state of good repair. In real estate, this can mean anything from a fresh coat of paint or new light fixtures to a complete overhaul that strips everything back to the studs and rearranges the entire floor plan. Renovations can also extend to the exterior of a property. Building renovations might mean new siding or a new roof while landscape renovations could be as simple as planting new annuals in the spring or as complex as installing a water feature without disturbing old growth trees.
One of the most important things to realize regarding property renovation is how involved it can be. It likely isn’t something you should begin on a whim, expecting to complete it in a day or two. Instead, successful property renovation is the result of careful planning and research, a team that works well together and weeks or even months of hard work.
What Does Property Renovation Involve?
As you might expect, there’s a lot more to property renovation than the actual renovations themselves. There’s a lot that needs to happen before the real action can even begin. If you’re wondering where to start, don’t panic. Consider this your tutorial for planning property renovation for beginners. Let’s go over the first steps you’ll need to take before your property renovation begins.
Property renovation requires a hefty amount of planning. You’ll need to decide what parts of the building you’re going to renovate, or if you want to overhaul the whole building. You’ll need to determine if you’re doing indoor work, outdoor work or both. You’ll need to investigate building codes and property requirements, and make sure you stay within the city and state guidelines, and factor those into your planning.
One element often overlooked is ADA compliance. “Any owner or prospective buyer planning on expanding or renovating a commercial property needs to consider how the Americans With Disabilities Act (“ADA”) will impact such expansion or renovation,” suggested Hedy Nelson, Esq, director of KW Commercial. “Before you plan a renovation, also check your State and local building codes for any additional requirements your renovation may trigger.”
This can be a lengthy process, and it’s important you don’t rush it. Give yourself time to think of all the facets of the work that will be involved. If you rush this process and don’t give yourself time to work through all the ideas carefully, you may run the risk of forgetting something crucial.
When planning, it can often be helpful to include a variety of voices in your planning committee. While one person might easily overlook essential details, those same details are less likely to be forgotten when there is a roomful of voices all contributing and sharing ideas. Consider asking others to help you make your renovation plans.
A critical piece of all planning is research. And when it comes to property renovation, there’s a lot to research. Spend some time looking into other buildings like yours. Ask yourself what types of renovations they have done, and if such changes might work for your building.
Look around your neighborhood or city and take notes on some of the other properties you think have lots of curb appeal. What makes them so appealing? What changes would allow you to achieve a similar look? You can also investigate recent trends and design fads. Would any of these work well on your property?
When researching, you’ll also want to review building codes and city regulations and make sure to include these in your notes as you begin planning in earnest. One other area to consider is green building supplies and energy efficiency. Robin Amato suggested the following as some of the highest value property renovations: “When upgrading use energy efficient / green materials, replace the roof if it’s in need of repair, use quality materials such as paint, flooring, windows.”
3. A Reliable Team
One of the most essential things property renovation involves is a reliable and hardworking team. Ideally, your team should include designers, engineers, contractors and many more professionals all working together to make your renovation project as successful as possible. During the early planning phase of your project, put some serious time into selecting the best individuals for the job. With a great crew behind you, your project is sure to be an extraordinary success.
How Long Does Property Renovation Take?
When asking this question, it’s important to realize every project will be different. Some are huge and may take over a year, while other projects are comparatively minor and may only take a few weeks to complete. The length of your renovation will be unique to your individual project. In most cases, for a medium size-project, a fair estimate is it will take several months. Remember, however, this is incredibly variable.
Create a Project Timeline
To help you gauge how long your project is likely to take and what the different stages will be, we recommend creating a timeline for your project. The odds are very good that this timeline will be highly tentative, and that’s perfectly all right. At this stage, it’s simply about projecting approximate dates and timeframes.
You may find it easiest to pick the date when you know you need the work completed. From there, work backward to arrive at the date you’ll to start your project. Make sure to leave plenty of time for each step, and remember that it’s always better to estimate too much time instead of not enough time.
How Should You Prepare for Property Renovation?
We’ve discussed planning and researching in a general sense, but what are some specific things you need to do as you prepare for your renovations?
1. Research Your Property
Familiarize yourself with your building’s history. The last thing you want is anything coming up at the last minute that could have an impact on your renovating plans. Make sure to learn all you can beforehand, while there’s still time to account for any potential hiccups.
2. Firmly Establish Your Goals
Decide for yourself exactly what it is you’re trying to accomplish with your renovations. Are you searching for more curb appeal? Greater functionality in your interior? More space? Whatever it is you’re striving for, firmly fix this in your mind and plan for specific changes that will help you reach this goal.
How Do You Budget Finances for Property Renovation?
Budgeting for property renovation is not so different from budgeting for anything else. Whether you’re creating a budget for supplies, liability insurance or property renovations, the basic principles are the same. David Sciamarelli, vice president of MacKenzie Commercial Real Estate Services, suggested: “Due to the size of commercial assets, it’s really important to budget your yearly operating expenses accurately and make sure to put money aside as reserves for capital improvements. Professional property management companies are extremely effective to helping with budgeting and can really stream-line this process. Nothing is worse than running a tight budget then realizing you need to replace a $250,000 roof which you didn’t plan for or previously set aside funds.”
If you’re wondering how to finance property renovations, here are some great tips to get you started.
1. Work With What You Have
Begin by looking at how much money you have to spend on the project in total. Next, look at your project and separate out all the different categories you’ll need to spend on. For example, one category might be materials, another category might be labor and so on. Take the amount of money you have to spend on the project and distribute it out into the different categories.
If you find yourself feeling uncertain about how much you’ll typically be expected to spend in each category, then this is where research comes in to fill the gaps. Do some searching online. Query different contractors. Ask other business owners who have had similar work done. Get a feel for the different prices out there and begin to distribute money into your budgetary categories accordingly.
2. Craft an Emergency Category
When creating your budget, don’t forget to also set aside an additional category as your emergency fund. Hopefully you won’t need it, but if you do, you’ll be grateful you have it. If an emergency occurs or an unexpected expense crops up, your emergency fund will be there to catch you.
3. Consider All the Factors
When you create your budget, don’t forget to include these key factors in your calculations:
- Building Use
- Building Codes Compliance
- Number of Disciplines Required
- Market Factors
When asked what are some of the highest ROI property renovations an owner can do to increase property value, Benton Downer from Downer & Associates and CAAR commercial council vice-chair suggested: “Most of the money is spent in annual maintenance and tenant upfit. Larger stuff like painting a building or replacing windows and doors is a staging process, done over time.”
Interior Renovation vs. Exterior Renovation
Finally, it’s important to consider the differences between renovating the interior and the exterior of your building. Decide whether you’ll be renovating the interior, exterior or both as you work on your project.
According to Amy Pelletier, a realtor with The D’Anthony Group: “We find that the following [renovations] are cost effective and make a big difference: Landscaping, cosmetic updates/painting, brick work if needed, paving/re-stripping, signage and fixture updates.”
Interior renovations might include tasks and projects like:
- Rearranging floor plans
- New fixtures
Exterior renovations might include tasks and projects like:
- Knocking down old rooms or building new ones
- New roof
- New windows
- Paving a parking lot
“In the end preventative maintenance is the number 1 thing we find to be the best investment for a property owner,” suggested Amy Pelletier. “If you allow the property condition to deteriorate over the years it costs more in the end and is a turn off to any buyer. Annual maintenance and upkeep costs less over time and provides the most impact.”Chapter 2: Interior Renovation