Renovation is straightforward for homeowners – do what you want, as long as it’s within budget. However, investors need to weigh the balance between the bottom line and a unit that is comfortable for the tenants (if they are landlords).
Hence one of the most common stumbling blocks when renovating: too much or too little, and an otherwise sensible investment can go wrong. Here are the top considerations when speaking to your contractor:
Things to do:
- Use the correct type of loan when necessary
- Source for fixtures outside of Singapore
- Align your renovations with the intended tenants
- Weigh your renovation decisions against the deposit
- Renovations carried out for maintenance purposes can be deducted from tax
- Keep your renovations and topic generic
1. Use the correct type of loan if necessary
Whenever possible, we advise you to save and not use loans for renovations. Interest will have an impact on your overall return and returns.
However, if you have no choice, make sure that you are using the correct type of loan.
A home renovation loan (Reno loan) is usually capped at $ 30,000 or six months of your income, whichever is greater. These loans often have an interest rate of around 3.88 to five percent per annum; well below the average of six to nine percent for personal loans.
Therefore, you should always get the Reno loan first. Should that not be enough, you can consider the more expensive personal loan to cover the rest.
If you are using “in-house” finance from a contractor or interior designer, make sure you understand how interest is calculated.
Some of these in-house loans use flat rates; that is, the monthly interest relates to the total loan volume.
This is more expensive than residual interest rates, where the monthly interest only relates to the outstanding loan amount. Banks are required to give you the “real” interest rate in the form of the effective interest rate (EIR), but self-financing may not be nice enough to reveal this.
You can also seek help from your mortgage broker or mortgage lender. When you take out a Reno loan from the same bank as your mortgage, you can sometimes get a bonus (e.g. six months of interest free time).
A corresponding note about the facility:
Reno loans usually do not cover home furnishings; these are considered to be a separate expense type. However, some banks may offer a home facility loan option; often an additional $ 10,000 on the Reno loan.
[[nid:533687]]
Remember to double-check that the interest rate applied is still the same, even if the two loans appear to be part of the same package.
Many interior designers and contractors have their own workshops in Singapore.
If you see furniture in the stores that you like, they may be able to recreate it at a lower price.
It doesn’t hurt to ask (but make sure you pay significantly less or you might be better off getting the real deal).
Landlords targeting short-term renters should aim to provide fully furnished units. If you are expecting long-term tenants (e.g. two years or more), it is usually better to leave the apartment semi-furnished (only tables, chairs and beds) or unfurnished.
Because long-term tenants often prefer to adapt the space to their own needs.
2. Source for fixtures outside of Singapore
For lighting fixtures, faucets, and similar items, find out the cost in Malaysia. It’s an open secret that most of them come from the other side of the dam anyway, so you can buy them where they’re cheaper too.
Thailand, Vietnam, Indonesia, etc. can also be cheaper sources; And thanks to the internet, it’s easy to compare prices online these days.
ALSO READ: Interested in a property? 3 new things to pay for
3. Align your renovations with the intended tenants
Most student renters aren’t interested in walk-in closets, but they might be interested in a soundproofed study. Single executives who eat out most of the time probably don’t need an extensively renovated kitchen; but they may appreciate a kitchen island that can act as a bar / dining area to accommodate multiple guests.
As an investor, renovate with the intended tenants or prospective buyers in mind. This can sometimes run counter to your own tastes and preferences, so having a second set of eyes is helpful.
A good realtor who understands tenant demographics is the best advisor; but some contractors / interior designers can handle this well too.
4. Balance your renovation decisions against the deposit
The deposit is usually one month’s rent for one year (or two months’ rent for two years). This deposit is intended to cover any damage that the tenant could cause.
Before deciding on expensive renovation options, weigh the cost against the expected security deposit. A monthly rental is unlikely to cover damage to, for example, 100 square feet of expensive marble tile or a $ 10,000 element wall.
Limit the damage that can be done.
(While you should have home insurance for further protection, it is best not to assume that your payouts will come or be enough. Always prepare for the worst).
5. Renovations carried out for maintenance purposes can be deducted from tax
If your property is rented, IRAS allows maintenance tax deductions; but not for renovations that are improvements / changes to the existing property. This can lead to some gray areas – if your renovation is to refurbish a damaged partition, for example, this can be considered pure maintenance.
These claims will succeed or fail on a case-by-case basis; However, you can try to claim deductions (or contact IRAS and ask / appeal).
ALSO READ: The 5 Biggest Regrets Of Home Buyers
6. Keep your renovations and topic generic
Certain renovations only appeal to certain buyers or tenants. For example, converting a room into a nursery is probably not the best idea; Tenants or future buyers without children have no use for it.
Certain “cool” ideas, such as converting the dining room with a bar and beer dispenser, are also best left to pure house owners. There is very little chance that this will add to your property value or rental income.
Instead, try to limit your renovations to general features that most people will use. That means ideas such as additional study, purely functional kitchen islands (an additional sink) or possibilities to convert the household shelter into more efficient storage space. We know this is a bit of a bore, but investors need a more pragmatic bias.
Specialized interior design themes are also difficult to justify from an investment perspective. Themes like French Cottage, Art Deco, and Victorian tend to be a blown budget and difficult to maintain (see below).
Things Not To Do:
- Pay everything at once
- Hit all the walls to “open” the device.
- Extensive renovations just before the sale
- Accept reviews / try to sell in the middle of a renovation
- Ignore long-term maintenance issues
1. Pay everything at once
Try to bargain to pay the full amount at once. Request a work plan from your contractor / interior designer in which you can pay at different stages of completion.
While you may get a discount for paying all at once, it still carries a higher risk. – If (touch wood) your interior designer or contractor closes or disappears in the middle of the process, you end up with half-finished renovations that you have already paid for.
In addition, the phased payment promotes on-time delivery.
2. Destroy all walls to “open” the device.
If you tear down partitions to turn three bedrooms into two, you’ll have one less room to rent. Landlords should take into account the possible loss of tenants, even if the apartment becomes more spacious as a result.
With owner investors, keep in mind that future buyers may not like open-ended concepts. For example, some traditionalists still prefer a closed kitchen; and your future buyer may be a landlord who wants that extra room.
Discuss it with your realtor and consider your demographic tenants (or likely future buyers) before the hacking begins.
ALSO READ: First-time tenants note: This is how much you need to save before renting
3. Extensive renovations just before the sale
Stick to maintenance and a fresh coat of paint. Don’t do more extensive work such as laying false ceilings or new flooring to add value to your property before selling.
Whether and by what amount a renovation increases the value of your property cannot be quantified. You could end up paying $ 30,000 for renovations, adding $ 10,000 to the final valuation.
Remember that buyers often want to customize the home to suit their tastes. We’ve seen renovations even a year old torn apart as new homeowners move in. As you can imagine, these buyers won’t be interested in paying a lot for your upgrades.
Renovation delays can also affect viewings and mess up your transaction time.
4. Accept reviews / try to sell in the middle of the renovation
It is difficult to evaluate a property that is in the middle of renovation because the appraiser has no idea what the end result will be. Buyers and tenants don’t like half-finished properties for the same reason.
Therefore, landlords or sellers should avoid anything more expensive than repainting during these times.
Note that certain processes, such as refinancing, may require the property to be valued.
5. Ignore long term maintenance problems
French Xottage, Art Deco, Victorian, and similarly complex styles are more difficult to maintain. They can include features like exposed wood beams, artificial bricks, window arches, etc., all of which require a level of dust and cleaning that most renters would not consider.
Certain types of material – such as soft bamboo floors or expensive wallpaper – are also more prone to damage. Also, be aware that tiles and wallpaper may no longer produce their respective designs if you need to replace them.
You’ll have to replace the entire section with something new or end up with weird patchwork repairs.
Therefore, investors should speak to the interior designer / contractor about long-term maintenance, not just the initial renovation costs.
Note that this is not to say that complex or high-end themes are bad. these can even be taken for granted in luxury properties. But you have to factor in the recurring costs.
ALSO READ: Investing In Real Estate Singapore: Property Tax And Buying Guide In Singapore
This article was first published in Stackedhomes.
