BiggerPockets

I'm working on a blog post for the BiggerPockets Blog and I'm curious:

How nice do you make your rentals before putting a tenant in?

Specifically, I'm writing about turning a primary residence into a rental, but this question could apply to tenant turn-over as well.

I'll be taking some answers from this thread to pepper in quotes for my upcoming blog - so please, share your opinions!

It depends on the rental. I've got one duplex that is nicer, newer, in a great neighborhood, and attracts good quality tenants. This one I try to keep in top notch condition. I feel like if I make it as nice as possible before they move in they maintain it that way.

I have another duplex that is in a less desirable neighborhood (but not bad), and it attracts so-so tenants. This property I try to have as clean as possible, and try to make it so the tenants respect it. However, the property is rather out dated (built in the 70's). I've done typical things like paint, flooring, and opened up one wall to make a better layout. However, I haven't updated cabinetry or bathrooms. I feel like I wouldn't get the return on the investment to modernize the place. I also feel like the tenants I attract there wouldn't take care of things like I'd prefer if I were to sink money into a quality remodel/update.

Keith

The two things I look at are:

1. What is my competition doing? Is my rental being out classed by similar priced rentals and what is the market for the rental

2. How well the rental is functioning? I almost always go with more durable amenities over style. Usually they are one in the same but the most important things for me when I upgrade a rental are will this upgrade be safe & durable and what is my return on the money Im spending. I would much rather add a bedroom or bathroom rather than get more stylish carpet. I try to give the tenants a blank canvass to customize with their furniture, ect.

I basically try to have my rentals be versatile, efficient, safe, and durable because its what my market responds to.

Here's a quick checklist that I try to follow when I rehab my rentals. I see that other people have put some of the reasoning behind their rehab effort but I thought it would be good to have some responses at the detail level as well:

1) No gold in the light fixtures. Even if its perfect, gold is all replaced.
2) Replace all the electric outlet devices unless they look mostly new (and always replace all the lightswitch/outlet plates). New devices and covers along with a paint job go along way in making the house seem like new construction. Don't ask me why. But it just seems to work that way.
3) New appliances - black
4) When flooring is needed: Medium grade frieze for carpet in living areas, ceramic in kitchens and bathrooms although sometimes I do laminate in kitchen depending on the height/surface in connecting rooms.
5) Replace countertops if dated or damaged.
6) Paint all walls - but only paint ceiling if really bad.
7) Certifiy HVAC
8) Replace kitchen faucet but not bathroom unless really bad.
9) An upgraded ceiling fan in living room and master bedroom.

Thats typically my list and then I do what most of the others have mentioned above. What is my return if I want to do more? Will it help me get more tenants if I do something else? How am I doing on my budget? How much is the rental? (big difference in whether I will budge on an upgrade if the rent is 1,400 vs 1,100).

There are some rehabs where I end up doing more because I have extra money left in my budget (i.e. I had no surprises) so I don't mind spending that to upgrade the living room from carpet to laminate. Or to put in a new bathroom vanity where the existing one was still functional.

To @Joffrey Long's point, any/all improvements that we ever make to our rental units will ultimately boil down to cash flow. If making an improvement (or paying more for a particular property) isn't completely justified by an improvement to our annual cash flow (to the point that it allows us to charge more in rent OR improve our vacancy rate), we don't do it.

Of course, this is easier said than done. It's not always easy to know exactly why one property sits vacant longer than another. And it's not always easy to know when a landlord is completely maximizing their revenue by charging as much rent as possible... but to the extent that we can reasonably predict this, we only make improvements to the point that they make financial sense.

I think it's also important to understand the demographic that you're marketing your property to. Just because YOU wouldn't want to live in a lower quality residence, doesn't mean there aren't hundreds of people in that market who would be more than happy to. Your standards may not (and probably doesn't) reflect the exact standards of the customers in your market. It's very easy to mistake our perceptions for what the market thinks, but it frankly doesn't matter if I would want to live my properties or not - it only matters whether or not my market considers the property to be in acceptable condition.

All of my rental units have extremely strong cash flow - and it's not because they're the nicest properties in the neighborhood. It's because I bought them at the right price, I understood each market reasonably well and because of that understanding, I don't go overboard with improvements, ever.

I've got a rental property ROI calculator that I use. I'm happy to send it to you if you think it would help. I use it to input all the variables and determine what the projected cash on cash, monthly cash flow and ROI will be.

Having the calculator is helpful, but what REALLY matters is plugging in the most accurate data. Your projections will only be as accurate as the numbers you use in your calculations. It is VERY easy (and very dangerous) to just "shoot from the hip" and pull numbers out of thin air without verifying them. I always have to do a lot of homework to verify my inputs before I know I've got a solid deal on my hands.