Auckland, New Zealand · Member since 2018 · 34 posts · 1 vote
I have been doing a lot of property scouting and found a area that I believe would be great for capital growth. However, a few of the houses I am looking at have really bad floors:
Would it financially make sense to change those to tiles (raises the houses value more then the cost of installation and materials) or would it be better of leaving them?
All help is appreciated as always, I believe many more questions are to come :)
Las Vegas, NV · Member since 2014 · 284 posts · 123 votes
6y
I occasionally buy properties at foreclosure auction in a handful of states that still have redemption laws. Quite often, it is the law when a property is subject to a statutory right of redemption that if you improve the property at all (with a few exceptions), and it is redeemed, that your costs to renovate the property are lost (you won't get that money back as part of the redemption payoff). Many an unwary buyer has been caught in the trap of renovating property subject to redemption, only to find they don't recover those costs when the property is redeemed.
This has led to some interesting situations where I have rented properties during the redemption period that, upon first look, no sane person would think could be rented. Giant red stains on the carpets, ripped up flooring and trim, holes in the walls, etc, etc. Usually, after a day or two of cleanup, I can get the unit into rentable shape for less than $500, and rent it for say $1000 a month (which is usually WAY below market, but enough to cover any ongoing costs such as taxes, HOAs, maintenance, etc.). This is good enough to ride out the redemption period, which in some states can be as long as a year or two.
My reason for telling you this is that you can rent the unit without new floors, and that you should try to find the price at which it would rent sans new flooring. Maybe even post two ads, one with new flooring and one without, and advertise them at different price points based on what you expect to get with new flooring. This will give you a sense for whether the renovation makes sense at this time.
While of course a nicer unit will rent for more money in most cases, I've always found this delta to be pretty low. It's hard to take a property in a "B" area and get outsized rents through renovation or "fancying up" the place. If you have a "B" property in an "A" area, you can sometimes get much higher rents through renovation.
Eventually, all properties will require renovation. Sometimes it's forced by circumstance (i.e. roof leaks and forces a renovation of the flooring). So at some point you will probably replace the floors, but you should see what you can get without doing fancy renovations that most renters probably won't really care about. My 2 cents...my guess is others probably have different advice.
Auckland, New Zealand · Member since 2018 · 34 posts · 1 vote
6y
Hi @Hal Thompson, your "2 cents" is much appreciated here. Always good to hear all the different opinons. Thank you for the advice, it has helped a lot. Especially the scenario using A area and B area.
However, I completely forgot to mention that this will be a flip. We will purchase it and then fix it up (whilst renting out the second bedroom) then sell it again. In this case, would the costs to change the floor be significantly less then the value it adds to the house?
