Owning a rental property in New Zealand is one of the best ways to generate income. But it’s also where the age-old adage “you have to spend money to make money” comes into play. And it makes sense, an investment property wouldn’t be an investment if it didn’t require putting something in. That something? Renovations and upgrades.
Whether it’s attracting better tenants, increasing rental income, or complying with ever-evolving regulations, upgrading your rental property is the key to unlocking greater returns. That’s why today, the team at the Rent Shop is taking a closer look at how to choose the right projects, and how to manage the process without blowing your budget (or losing your sanity!) in the process.
Why Renovate or Upgrade a Rental Property?
Put yourself in the shoes of a tenant scrolling Trade Me. Which properties catch your eye—the ones with cracked linoleum floors and tired beige walls or the ones with modern kitchens, heat pumps, and freshly painted exteriors? It’s a no-brainer. Properties that look good and function well attract better tenants and most importantly command higher rents.
In fact, Opes estimate that if you’re doing things right, every dollar you put into renovations should generate a return of about $2.50 - $3.50. This means if you’re spending 30k on a renovation, even at a conservative estimate, you should be getting 75k back from reselling, and a proportionate long-term increase when it comes to renting.
Beyond financial considerations, there’s also the matter of staying on the right side of the law. New Zealand regularly updates its housing regulations, and as a landlord, you have a responsibility to comply with the Healthy Homes Standards and ensure your property is well-maintained and habitable for tenants. So why not get ahead of the game? If you know your kitchen is in disrepair, it makes sense to invest now, boosting your property’s value, rather than renting it out at a lower rate and being forced to make gradual, costly improvements over time.
Factors to Consider Before Renovating or Upgrading
Before swinging a hammer or hiring a tradie, pause and take stock of what you want to achieve. Renovating your property is an investment, so you want to make sure it delivers real value.
Understanding What Tenants Want
Are you renting in Wellington’s CBD, where professionals want sleek, modern apartments? Or is your property in a family-friendly suburb in Auckland, where tenants look for space, safety, and schooling? It’s important to tailor your renovations with your ideal tenant’s preferences in mind.
Setting a Realistic Budget
Renovations can quickly go from affordable upgrades to financial black holes if you’re not careful. Start with a clear budget and always include a buffer (because when was the last time a renovation came in under budget?). Get quotes from multiple contractors and make sure not to rush into anything.
Legal Considerations
The last thing you want is to spend thousands on a renovation only to find out you need a council permit you didn’t get. Always check with your local council and make sure your renovations are up to code. As a general rule of thumb, building work that requires alterations, additions and structural repairs to existing buildings requires consent. Of course, you can get away with replacing a few appliances, but removing a load-bearing wall? That will require jumping through a few hurdles.
Choosing the Right Renovations or Upgrades
Not all upgrades are created equal. You want to choose renovations that will not only improve the property but will also offer the highest return on investment (ROI). So, what should be at the top of your list?
Kitchen and Bathroom Upgrades
If there are two places to spend money, it’s your kitchen and bathroom. These two areas are the workhorses of any home, and tenants love modern, clean, and functional spaces. A dated kitchen or mouldy bathroom can be deal-breakers. A quick facelift with new countertops, fixtures, and new tiles can do wonders for the property’s appeal.
Healthy Homes Compliance
With New Zealand’s climate, heating and insulation are critical, especially in older homes. Upgrading to double-glazed windows, installing a heat pump, and ensuring proper insulation are not only legal requirements but key selling points for potential tenants.
Curb Appeal
First impressions matter. A freshly painted exterior, tidy landscaping or even just new front steps can make all the difference when prospective tenants pull up for a viewing. In fact, according to a study by REINZ, curb appeal can increase a home’s property value by up to 10%! The best part is, you don’t need to go overboard—a few small changes can increase your property’s attractiveness without draining your wallet.
Managing Renovation or Upgrade Projects
Alright, you’ve got the plan, the budget, and the vision. Now comes the hard part—actually getting it done.
- Setting a Realistic Timeline: Even the best-laid plans can face delays. The key here is to set a timeline with some wiggle room. If you’re upgrading between tenancies, allow a cushion for potential over-runs so you’re not missing out on rent..
- Communicating with Contractors: Tradies -like any profession really - are a mixed bag. While there are some who are amazing, efficient and knowledgable there are also a few looking to make a quick buck at your expense. Get recommendations from other landlords, check online reviews, and always be clear about your expectations.
- Tenant Considerations: If your tenants are in place during the renovation, keeping disruptions to a minimum is key. Offer them some incentives, like a rent reduction during the upgrade period, and always keep them in the loop.
Calculating ROI
How do you know if your renovations are paying off? It all comes down to calculating your ROI. Here’s a simple formula to help:
ROI = (Income – expenses) / total expenses × 100.
If maths isn’t your strong suit, feel free to check out Moneyhub’s handy ROI calculator.
Time for an Upgrade?
Whether you're upgrading for compliance with the Healthy Homes Standards or adding modern features to boost appeal, every step you take towards improving your property is a step towards growing your wealth.
Need a hand? We’re happy to help. Talk to the team at The Rent Shop to get expert advice on how to maximise your property’s potential and protect your investment for the future.
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