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When you own a rental property, your goal is to always have tenants so that you can maximize your investment profits. However, sometimes your property could use a renovation that will make it more attractive to future tenants and further increase your returns. What do you do when it is time to start renovating a rental property, but your current tenant’s lease isn’t ending anytime soon?
Even though you own the property, your tenant also has rights. You should make every effort not to disrupt a safe, private and quiet living situation. If the tenant is inconvenienced or displaced, or the victim of a crime (renovation means many different people coming in and out of the house), you could be facing legal trouble for breach of the lease. Before you decide to start renovating a rental property, ask yourself what the best approach is.
But first, before you start renovating a rental property, click the link below to book a free strategy call to discuss how you can get the funds you need to start renovating a rental property by drawing existing equity from your investments.
Should you make improvements now?
When does it make sense to start renovating a rental property when you currently have a tenant? There are two scenarios:
- The tenant plans to stay in the unit for the foreseeable future and will benefit from the renovation.
- You can offer the tenant some other concession for the inconvenience, e.g. reimbursement for relocation or discounted rent.
As with any renovation project, deciding when to start is never simple. There are a few things you will want to consider while renovating a rental property.
Renovating a rental property versus repair
If your property needs maintenance or repair because of a safety hazard, it must be completed as soon as possible. If the roof is leaking or there are problems with the wiring, this should be addressed immediately. Your tenants will understand and will be grateful you’re taking their safety seriously despite the temporary convenience.
If you want to make a change like updating the kitchen, you need to weigh several factors in making your decision. How long will the renovation take? How much will it impact the tenant’s daily life? What is the return on your investment versus ending the tenant’s lease early? Determine whether the potential for profit is worth the potential liability.
Plan for vacancy
With some foresight, you can plan your renovation for a time in between tenant leases. When you know a tenant will be moving out, book your contractors to start the project after that date. Factor in the lost income from keeping the unit empty for a month, or however long the renovation takes. Post listings for your rental with a move-in date that gives you enough time in case renovations take longer than planned.
The nice thing about the planned vacancy is that your contractor will have easy access to your property. Instead of having to book around your tenant’s schedule and worrying about inconveniencing someone, the contractor will have free reign to complete the job quickly. It also allows you to increase the price of rent for a new tenant instead of negotiating to raise the rent on a current one.
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Understanding a breach of lease
If the renovation disrupts the tenant’s right to quiet enjoyment of the space, the tenant can pursue legal action for breach of the lease. This may require you to pay them for lost costs like rent, or they can sue for damage such as emotional distress.
Under the Residential Tenancies Act, the tenant can file an application for an abatement of rent for two things: loss of service and interference with reasonable enjoyment.
- Loss of service is when a tenant loses access to an amenity in common areas or within the unit. For example, if you remove the laundry unit to convert it to storage space, then the tenant loses an amenity that was likely a big reason why they chose your property.
- If the landlord or an agent of the landlord (i.e. contractors) interferes with the use or enjoyment of the property by the tenant and did not take reasonable steps to inform the tenant and offer alternative accommodations, the tenant can ask for rent abatement. Abatement is usually 25 percent of the rent, but local officials have the discretion to raise it.
Best practices for renovating a rental property with a tenant
If you’re going to move forward with renovating a rental property while it is still tenant-occupied, there are a few best practices you can follow to keep you in compliance legally and continue a good relationship with your tenant:
Provide sufficient notice
You must provide at least 60 days’ notice whenever you plan on renovating a rental property when the renovations will end up impacting tenant enjoyment of the property. If you know further in advance, even when the tenant is still prospective, let them know as soon as possible. The notice should include the nature of the work and the timeline of the project.
Talk to your tenant
Once you’ve notified the tenant, walk through the plans and answer any questions by phone or in person. Your tenant is the one using the space and will likely be excited about the upgrade. Perhaps your tenant plans on taking a two-week holiday and you can schedule the renovation around that. He or she may even have some helpful input.
Offer alternative accommodations
If the tenant will be unable to reasonably use the unit during renovations, offer to pay for relocation and housing costs during that time. Consider whether just part of the home is unavailable, like the kitchen or laundry facilities, and if you can find a reasonable solution in the interim.
Vet your contractors
Because contractors and other professionals will be in the unit with the tenant and the tenant’s property, make sure you research companies who perform background checks on their employees. Make reasonable steps to protect the tenant and the tenant’s property by monitoring who has access to the unit and when.
Provide project updates
Communicate any changes to the tenant promptly, particularly as they relate to when the project will be complete. Allow the tenant to ask questions or raise concerns.
It is not your tenant’s responsibility to manage the project. Stay involved and visit often so the tenant isn’t responsible for relaying information to contractors or answering questions.
While maintaining a beautiful and safe rental property is an important part of successful real estate investing, so is maintaining good relationships with your tenants. Make sure you can do both by planning for property improvements and being mindful of you
Now, before you start renovating a rental property, click the link below to book a free strategy call to discuss how you can get the funds you need to start renovating a rental property by drawing existing equity from your investments.