Chapter 5: Value of Property Renovation
We’ve spent all this time talking about renovations, but it’s worth taking a moment and asking the crucial questions. Should you renovate your property? Is property renovation worth it? And does renovation increase your property value? We asked a few local realtors in the Virginia/Maryland/DC area to find out:
“This depends on the renovation, you don’t want to spend too much on items that are less likely to attract a buyer because it is not worth it. The seller may lose money.” Amy Pelletier, realtor with The D’Anthony Group, continued “Painting and landscaping are proven to get the seller the highest return, as well as updates to fixtures/cosmetic items. If a property is outdated and listed at the top of the market, this is a turn off.”
David Sciamarelli, vice president of MacKenzie Commercial Real Estate Services, gave us his take on the ROI of property renovations: “In the commercial sector of real estate, especially in high demand markets, the sellers will not typically make their money back unless the overall renovations are going to escalate the perceived class of the building higher (example: from a Class B building to a Class A building). This is even more so relevant to investment grade commercial real estate. For investment properties the money will not come directly in the form of a sales price, however could potentially lead to quicker lease-up and higher rental rates, thus increasing the value of investment grade real estate (which price is based on a CAP rate or multiple of the cash-flow rather than the price per square foot of the building). Owners Occupants are more likely to make their money back; however, it will still depend on class of the property and demand in the market. In either case, this is rarely caused by just one renovation (example: only upgrading the common areas or only upgrading the landscaping). COMPS for the market are based on a per square foot value based on the asset type (office/industrial/flex/retail/multi-fam) and asset class (A/B/C/F).”
While every case is different and should be evaluated on an individual basis, in most cases, when you invest in the right renovations they can increase the value of your property. Higher property value means you can charge more rent or set a higher sale price. Either way creates more profit for you.
Long-Term Profit Potential
When you renovate your property, you’re opening the door on greater profits in the long-run. This is a simple chain of cause-and-effect. When your property is more updated and renovated, there will usually be more competition for it since more people will want to rent the space. This allows you to charge higher rent since more people are interested in your property. This creates higher profits for you.
Even if you use your building yourself and aren’t going to rent out, renovations will still lead to higher profits, as your new and upgraded look will lead to more customers visiting your building. These new customers will then tell their friends, who will tell their friends, and so on as your customer base continues to grow.
Return on Property Renovation Investment
There’s no denying it does cost money to renovate a property. Don’t let this deter you from making your necessary renovations, however. The key principle here is return on investment, or ROI. In this idea, you’ll invest money upfront, but you end up receiving more money in the long run, earning back more than the amount you invested. In this way, the ROI of property renovation is almost always positive.
Property renovation value is such that even though it costs money to create changes and updates, it is very often worth it. You will usually earn your money back and then some, as well.
Because of this, don’t be afraid to invest money upfront into your renovations. Don’t be afraid to make the place look truly nice. People will notice, and your hard work will pay off. It might feel a little bit like a leap of faith, but it’s worth it. To reap the rewards of upgrading your property, you’ll first have to put the time, effort and money in upfront. So, do some careful planning, budget your money, take a deep breath and take the plunge.