Residential Rental - Home Improvement Upgrades

[Greg Heden]

I own and operate a high-end full service remodeling company in the Phoenix metro area.  I recently have purchased a four-plex and single family residential home to add to my RE portfolio.  The challenge that I have is wanting to correct all the DIY and lipstick on a pig improvements that have been done throughout the years.  I have trouble just making them clean and livable and calling it a day. Fortunately I can facilitate all the improvements at cost but is it realistic to think I can draw a higher end renter that is willing to pay above market rent to live in much nicer appointed home?  Has anyone approached their rentals with this mentality? What percentage over local market have you been able to achieve? Thanks in advance!

[Andrew Postell]

@Greg Heden this is a common topic of discussion and the method that always comes up - what do your comps say?  Meaning, we can't over-improve a property based on the neighborhood.  Sometimes people will ask "Should I enclose a garage?".  And the answer is - what do your comps say?  If that neighborhood demands having a garage...then you might be damaging your value and rentability by enclosing that garage.  So, even though you would be adding square footage in that scenario, it might be counterproductive.  But then there are neighborhoods where enclosing a garage is fine.  Same can go for finishing a basement, putting in granite countertops, adding a pool, flooring, etc.  Especially when the economy is putting the squeeze on certain demographics...you may not be able to press for ANY above market rents - because your competition is renting for cheaper.  

We usually make our money when we buy.  So, depending on your acquisition price, maybe you can put in some extras but I would highly encourage you to base your decisions on what your comparable properties show.

Hope all of that makes sense.

[Colleen F.]

@Greg Heden   I would say that the question what percentage over local market are you able to acheive is the wrong one. The real question is what is the market for the improvements you are making? you are looking at do you get more for in unit washer etc. or other amenties. Yes, you attract more people with an updated look. not sure they pay more, as the previous poster said look at direct competition.

[Josh Young]

@Greg Heden you will typically not get a very good return on the improvements unless you bought distressed property that needs improvements to be livable. Obviously it depends on the comps, but generally speaking over improved properties don’t necessarily bring in very much more rent (maybe 5% more), but they do get more applicants and rent quicker (unless they are overpriced, then they will sit). The things that are most important are cleanliness and great photos.

[David Avery]

I agree with  Josh Young. 

Having Rehabbed 1000"s of rentals 

It's about the $$$.

Can only get as much rent..

Get with the experts  , high end property management services,  Contractors with RE experience x 100.

Pick their brains. Or hire them to walk a property and make decisions quickly. 

Good luck

[Michael Smythe]

@Greg Heden here's a funny story along your question.

Seattle investor came to City of Detroit and his plan was to over-improve Class C rentals to get the "best" tenants that would appreciate the higher quality of home, pay above market for it, take better care if it, stay longer to reduce turnover costs and avoid rent nonpayment issues.

After 2 years of trying to do this on his own, reality won and he hired us (we initially spoke with before he started and warned we didn't think it would work). 

Is it possible - yes.

How likely are you to succeed? --that is the question...