Good property maintenance is important to your tenants and to your bottom line. The condition of your property affects your ability to attract and retain tenants, helps establish the rents you can charge, and can enhance or reduce the value of your property, dictating your borrowing power. But at some point, maintenance turns into renovation. Deciding when to renovate what areas of your rental property takes careful consideration. Before you begin your next rental property renovation, ask yourself these five questions:

1. What is the return on your renovation investment?

Whether you plan to replace appliances, upgrade a bathroom, or knock down a wall in your rental unit, you have to balance the costs with the potential returns. There are ranges of design and cost options for any renovation you want to undertake. The key is to make choices that will not only improve your property, but will also increase its value.

If you upgrade the kitchen, maybe you could get more rent for the apartment. Would that increase in rent justify the cost of granite countertops or should you stick with laminate? Could you raise the rent if you put a new floor in the bathroom rather than repairing the old floor again? Would the increased rent cover the cost of tile from a flooring retailer, or should you go with builder-grade material from a big box store? How much of an increase in rent could you get by building a partition wall to create an extra bedroom or knocking down a wall to open up the floorplan? Thinking through the costs of your renovation project versus how it could increase your property value and the return on that investment is important before planning your project.

2. How will the project schedule impact your business income?

When planning your rental renovation project, timing is important. Typically, a rental business plan includes minimizing the turnaround time between tenants to maximize income. It is important to know how long the renovations will take and prepare for the vacancy and consequent loss of income. If your renovation project was triggered by a fire or other insured event, your businessowners policy (BOP) may help replace some of that lost income.

If there is no need to hurry, you have some options when scheduling a renovation project. You will most likely want to wait until your tenant moves out to begin renovations. If you don’t want to wait, you may be able to coordinate the renovations at a time when your tenant will be away; however, you should be aware of the added liability of working in an occupied apartment. When renovating a vacant property, be sure your project schedule will not leave you with a vacant apartment at a time of year when re-renting could be slow.

3. Will the project disrupt other tenants?

You waited for one tenant to move out before planning a renovation project on that unit, but what about your other tenants? It may not be practical to wait for all four units in the building to be vacant before calling in the contractors for some much-needed updates. In most cases, updating one unit at a time is easiest and most economical.

Your need to improve your rental property does not supersede your responsibilities to your existing tenants. It is a good idea to consider what disruptions your planned project will cause for the other tenants in the building. Will the driveway be blocked by trucks? Will there be excessive noise, dust, or odors during the day? Do you need access to one of the other units to complete the project?

Notifying all the tenants of the scheduled project will help you avoid some angry phone calls. Depending on its size, the planned renovation may significantly impact other tenants in the building. You should consult those individuals separately, express some appreciation for their inconvenience, and make an effort to work around their schedules. Offering some type of temporary rent reduction might be better than having angry tenants try to hold you liable for creating uninhabitable housing conditions.

4. How does the renovation project affect your liabilities?

Any time you bring outside contractors onto your property, you are assuming additional liabilities. Confirm that the contractors you hire are insured and verify their coverage before the project begins. You may also want to check with your insurance agent to confirm whether the coverage on your policy is adequate to the situation. What happens if the contractor is injured? Who’s responsible for protecting your tenants from injury? Are your liabilities covered in the event a visitor to the property or a stranger walking by is injured due to your renovation project?

The renovation project you are undertaking might be of a significant enough scale to alter your property insurance needs, if only temporarily. While all or a portion of your rental property is uninhabitable due to renovations, you may need a rider to your policy. Typical property insurance will cover your property if it is unoccupied, up to a certain amount of time. However, once it becomes uninhabitable, you may fall into a coverage gap.

If your property is damaged due to a storm, for example, and your tenant has to move out, you could require vacant property insurance until the repairs and renovations are complete. When you choose to undertake a renovation project to update or improve your property, you may fall into a coverage gap as well. Do not assume that because other tenants remain in the building at the time that the property is not uninhabitable. If it would not be possible to live in the unit you are renovating during the project, you should contact your insurance agent to ask about vacant property insurance.

5. Do you have the liability coverage you need to take on this project?

Of course, you have a Businessowners Policy (BOP) for your rental business, but when was the last time you updated it? Does your agent speak to you at least once a year to check about changing and emerging risks, matching your coverage to your changing needs? Renovation or construction projects open you up to a whole new set of potential risks that your BOP may or may not cover.

If you’ve spent any amount of time in property maintenance, you know that buildings have a lifecycle. New construction does not remain new forever. Over time it goes through a cycle of requiring regular maintenance, and then, eventually it needs renovation or even reconstruction. During the different phases of your building’s lifecycle, you will have different risks and insurance needs.

With typical construction insurance, you need to cancel one policy and get a new type of coverage as your building cycles through construction, occupancy, and renovation phases. At Millers Mutual, we offer a Building Lifecycle Endorsement that can be added to your BOP to cover all exposures throughout the lifecycle of your building on a single policy.

Before you begin your next renovation project, contact a local insurance agent to learn more about how Millers Mutual Insurance can help protect your rental business with our building lifecycle coverage.