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Real estate market

Revenue Calculator: Is it Worth Renovating The Apartment Before Renting it Out?

new interior plan with paint samples
Written by Daniella

Real estate numbers are indicating that renovated apartments rent out better than those that have not undergone renovation works. This means new trends are developing, and in this case it concerns tenants and their needs.

Renovating and redecorating apartments has been recommended for a few years now. It changes the value of the apartment, which makes it more profitable than before redesigning it.

calculate the profitability of the apartment barcelonaIt is however, and as with any investment, important to be aware of the total amount of money you are planning to invest, and the length of time in which you will earn back this investment.

Are you eager to learn if renovating your apartment before renting it out will lead to more revenue? Then keep on reading this article, because we will demonstrate a tool (with five simple steps) that will give you an answer to exactly this question.

Related article: What is Rent Protection Insurance?

The valuation of an apartment: How to determine the rental price of a property?

In order to come to a fair rental price for your apartment, you should arrange for a valuation to get an official number. The following aspects will be taken into account:

  • Location. The location of the property will affect the true value of the apartment. Are there any facilities nearby? This could result in an increase of value. Keep in the back of your mind that neighbourhoods sometimes change. For example, real estate in an older residential area can increase in value when the infrastructure improves.
  • General condition of the property. Of course, the condition the apartment is in is largely responsible for the value of it. Think of the overall condition of the building itself, the apartment and installations. If you decide to start a big renovation project or are willing to improve a couple of smaller interior elements, then this will automatically have consequences on the monthly rental price. In addition to that, research shows that a modernised apartment is more appealing to new tenants, and as a result it rents out more quickly. Having a new valuation of the apartment after a renovation is therefore worth it!
room with couch and decorations

Photo via Freepik

  • The quality of the apartment’s surroundings. Everything in the immediate vicinity of the apartment – hospitals, shopping centres, public transport, schools, parks and other facilities – contributes to the value of a real estate object.
  • The availability of real estate properties in the area. You should have knowledge of the real estate market and of prices asked for similar properties in the same neighbourhood. This is the only way you can truly assess the value of a property. If you don’t have the information yourself, always ask a real estate professional for valuable advice.
  • Commercial activities. Having shops nearby increases the value of a property, because that is what many tenants nowadays ask for when looking for a new place to live.
  • Noise pollution. If an apartment is in a very noisy area, with lots of people or traffic moving about, the value of that apartment might actually decrease. Is your property in a nosiy part of the city? Then focus on soundproofing during renovation works.
small house with clipboard and pen

Photo via Pexels

What type of renovation suits my property?

The answer to this question depends on two simple factors:

  • The current state the apartment is in
  • Your renovation budget

Sometimes the word ‘renovation’ scares people, because they immediately think they need a huge budget for this, but this doesn’t always have to be the case.

If the apartment you want to rent out is still in quite a good condition, a smaller renovation may be more than enough. Consider repainting all the walls, replacing old appliances or furniture, freshening up the apartment with new decorations or emphasizing the atmosphere in the apartment with new lights. This will cost much less and still has a positive effect.

📌 Have you already heard of ShBarcelona’s Renovation and Decoration department? If you are thinking of renting out your apartment and investing in renovations before doing so, be sure to contact our team of interior designers. They can give you a quote based on your available budget, and as a result you will be able to rent out (or sell) your property much faster.

Renovation and Decoration

modern interior

Photo via Pexels

If your property does, however, need more thorough renovation works, then it might be smarter to properly invest now. This investment can then be earned back in a short to medium period of time.

Thorough renovations are usually much larger projects, comprising floors, the kitchen and/or bathroom. After all, these are regularly used areas in an apartment and important to a tenant. Renovating these rooms will usually guarantee rental contracts for a longer period of time with better revenue!

Another aspect that should certainly not be forgotten when determining the value of a property is energy consumption. If you decide to invest in better insulation, consider replacing single with double glazed windows. This will lead to a more constant temperature inside the apartment.

You can also check the general electrical installation, especially if it concerns an older property. If an apartment is outfitted with a grounding switch, this will prevent voltage peaks and slumps, and therefore prevent possible short circuits and fires.

📌 Remember to arrange for an energy performance certificate when renting out the apartment, and that the electrical installation must comply with current regulations.

To sum it all up, always perform an analysis of what kind of renovation the apartment really needs before you start. You will then not only earn extra income each month by renting out the apartment, but you will also be in the possession of a renovated and up-to-date property.

Don’t forget applying for any necessary permits needed to carry out larger renovation projects.  ShBarcelona advises you to hire an expert in arranging these permits. These professionals can actually help you with the entire renovation process.

ShBarcelona’s revenue calculator explained

To get an estimate of the property value after renovation, simply follow these five steps in ShBarcelona’s revenue calculator. It takes the costs of renovations into account, and shows you where you can make extra revenue.

Let’s start with an example to illustrate the five steps. In this case we assume the following characteristics:

  • it is 80m² in size
  • the purchase value would be 230.000 euros today
  • in its current state it would rent out for 1000 euros per month
step 1 revenue calculator

step 1 revenue calculator

In this case it concerns an old apartment, and therefore it needs thorough renovation works. It also needs new furniture. Research shows that this type of renovation will cost an average of 700 euro/m². The available budget is 50.000 euros, but in addition to this, there is an extra budget of  4.000 euros for furniture.

step 2 revenue calculator

step 2 revenue calculator

Now let’s determine the rental price it could be put on the market for after renovation. If you decide to rent it out as a monthly rental, then your income would be between 20 to 30 euros per square metre in the city of Barcelona. The rent will therefore be set at a price of 2.000 euros, which is 24.000 euros a year.

step 3 revenue calculator

step 3 revenue calculator

After filling in these numbers in the calculator, it indicates that the value of the apartment after renovation will be 284.000 euros. The rent is set at 2.000 euros per month, which is double the amount of before the renovation. This is an extra 12.000 euros per year, and the result is a revenue increase of 3,23%.

step 4 revenue calculator

step 4 revenue calculator

The last step now shows you the total return on investment percentage, which is 22,22%. That’s certainly worth it, isn’t it?

step 5 revenue calculator

step 5 revenue calculator

You can download a PDF at the end of the calculation. You could use the numbers as a reference to further plan your renovation project.

As always, good property investment is a matter of the costs of the investment and payback times. Renting out a property is a safe and secure option to earn income, especially because of the return on investment over a longer period of time. Real estate rules and regulations will, however, determine whether in the end it is worth investing in renovating your apartment.

Sources:

About the author

Daniella

Daniella enjoys everything the city of Barcelona has to offer. She writes, translates and loves discovering Catalonia and its beautiful nature.

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