Confessions of a Rehabber: Expert Tips for Profitable, Rentable Properties
I have owned dozens of rentals over the years, and I have gone through many stages of what a rental house finish should look like. Believe me when I say I am glad I am no longer in there trying to paint an entire house by myself or fix the plumbing in the bathtub. It’s not that I have anything against people who do that in their rental properties; it’s that I’m not particularly good at it, and I don’t enjoy it.
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As far as my rental rehabs, they definitely have evolved over the years. I used to ask what the cheapest thing I could do to get my properties rent ready was; now I ask what we need to do to make it totally RIGHT. Make it nice. Make it extraordinarily desirable. There is a big difference dealing with things like replacing plumbing, electrical outlets, light fixtures, even hot water heaters upfront (relatively small costs) versus doing these things when tenants are in the house (they’re a pain to deal with and more costly).
For the record, and since these kinds of properties help pay my bills — I love the debate over the 2% rule, and how a $30k house is or isn’t good for you, or a good investment, or whatever. The past two weeks, I have put up two houses for rent and I wanted to take some time to talk through the rehab, and then talk about actually renting the houses.
Related: Rehabbers Beware: 5 Big Issues Distressed Properties Hide (& How to Detect Them)
Oh, and this little thing: They both rented the first day I showed them, for more than I anticipated — at or over the 2% rule of rent-to-cost of the property.
One of the giant misunderstandings about the $30k house is that it’s in the ghetto. Not the case. If we are looking at a $30-$40k house to BUY, it’s another $7-10k plus to rehab, and it’s more like a $60-80k house when we are done. We end up with a great LTV if we roll the purchase and rehab into long term debt. We have a good value with the house that we now own that is totally redone inside, AND we have to make sure that we have made critical choices on what the houses looks like inside and out, and that people actually WANT to rent them.
I’ve written on our rental rehabs a few times, so I don’t want to be too redundant, but I believe it is worth a synopsis. We go through and paint everything inside and out. Roofs that need to be replaced, are. The gutters are fixed or replaced. The outside gets cleaned up, and we add a little mulch and plantings if necessary to make its curb appeal pop.
The inside gets fresh paint on the walls, ceilings, and trim. The floors (if they are hardwood) get redone with a dark stain. We use the same color paint, the same color trim, and the same color floors. I’ve started to put the mixed stainless/black stove in the units as well, and I’ve happened to catch both of these stoves on sale, spending as much or less as its white counterpart costs.
The kitchens looks awesome, with new counters, sinks, faucets, etc. The plumbing gets updated. All the stuff inside that tenants might be calling you about sooner or later — that you DON’T want to deal with — we deal with it beforehand.
On the last house, we replaced many of the windows in the house with the vinyl replacement windows. If the windows in your home are stock sizes, you can get the basic vinyl window for $120-$150 per window, and most guys I’ve found can install them for around $40-50 a window. Our houses are around 800-1,000 sq ft and usually have around 10 windows. Is $2,000 for all new windows a good investment? You bet it is. Do new windows make a tenant excited? Absolutely. Is a new window that is efficient, easy to clean, easy to maintain, and hard to break exciting for me? Yes!
On one of the properties, I decided to try pre-listing it. I had it up about 2 weeks before it was ready. I took one front picture of the house, along with a few interior pictures of several of our previous ones, saying something to the effect of, “These are our finishings and color scheme. House coming soon.”
The house cost $28k, the rehab was just over $10k, and I asked $950 in rent.
The phone would not stop ringing. My email wouldn’t stop dinging with people wanting to get into this property. It was constant.
I loved that so many people wanted to rent the house, but I couldn’t get people into it — so that became a bit frustrating for me, as well as I imagine for the tenants.
By the time we finally had it ready to go, I called everyone back and set up back to back appointments over a period of 3-4 hours. I had about 5 or 6 showings that day, and the first people who walked into the house put in their application (I had spoken with them during the pre-listing time), and they put their deposit down that next day.
Not Pre-Listing Rentals
The next one I did, I decided not to pre-list, and I didn’t even put a sign in the yard. I put it up online on a Saturday afternoon around 2 p.m. By Sunday evening I had approximately 20 emails and another 5-10 phone calls. I again scheduled the showings back to back to back to back.
The first person who showed up was nice, walked through the house, asked where they could apply. I handed her the application, and she filled it out. About that time the next couple walked in. I asked the first person if she was interested, and to make sure she got the house, she would need to go and get me the deposit check. She said yes.
First person: Application, deposit, background check, etc. — and done.
I kept hearing how nice our houses are. This goes a long way. The tenants sees a nice house. I don’t have to hear from them on my cellphone. We have also set a demand for our properties, as people see the kind of house they can have for the money we are asking.
The pre-listing strategy isn’t something I am going to do again. It wasn’t worth the hassle before I could get the interested people into the house. Absolutely putting people back to back is worth it. I’ve used the 3-5 open house kind of idea before, but I’ve found it’s much better to lock someone into a specific time so they feel like they are going to miss it since they scheduled a time with you.
I also let the people who are coming know that our houses have gone quickly in the past, and if they are interested, I will have the applications there (or they can fill one out online), and to bring the deposit check with them so they don’t miss out.
We love spending only one hour to get an awesome tenant. Use your advantages — whether it be location, style in rehab, or marketing skills online, and generate interest in your properties so people are coming to you to rent your properties. Tenants in your property faster equates to fewer holding costs, less time for something to happen to your vacant house, and more money in your pocket.
What are the best and worst things you have done in your rental business, and what is the number one thing you are doing now that is making your rental business run more smoothly, efficiently, and most profitably?
Leave your comments and suggestions below!