To renovate or not renovate?

OP

Investor · NJ · Member since 2023 · 13 posts · 9 votes

3y

I recently acquired a two family home: 1 bed/1 bath and 3 bed/2 bath. Across the street, a brand new apartment building are completing their build and rentals will be available in April. Their rental prices are: 1 Bedroom from $1695, 3 bed and 2 bath from $2600 meaning my rental prices will have to be significantly less.

The area has a lot of potential but not developed as of yet. The multi-family is in good shape just needs a bit of paint and the floors need to be sanded. However, the kitchen could do with some upgrading. Even with the upgrading, my rental income will still be capped (1bed $1500, 3 bed $2300). Appliances will be upgraded.

Do I spend the money now and upgrade the kitchen even though it won't increase my rental income or should I wait until the area has developed more so the money I invest in the kitchen will actually give be a better return in my rental income?

No.

You spend only six months BEFORE you plan to sell. If you rehab now the tenant would destroy your nice home anyway

Great idea! Thank you so much.

0 Reply

Forrest T Schue

Investor · Member since 2022 · 106 posts · 67 votes

3y

Quote from @Asha Carpenter:

Quote from @Forrest T Schue:

Quote from @Asha Carpenter:

Quote from @Forrest T Schue:

What are you thinking of doing to the kitchen? Any way you could meet in the middle and to a light remodel? Maybe just refinish the cabinets, and go with a new countertop and updated appliances. Look at some local trends for colors, or what the building next door is doing, and give the people what they want without breaking the bank. Doesn't look like it needs much.

P.S Something I also like that is pretty good bang for your buck is installing an over-the-range microwave. It frees up countertop space, looks good, and can vent right out through your hood fan ducts.

Best of luck!

I'm thinking of changing out the gas stove to black and stainless steel to match the fridge. I'm a bit stumped on what color to pick for updating the kitchen cabinets. I was thinking of a taupe with black hardware, black countertop but worried if those colors would compliment the flooring? I absolutely love the microwave range idea - that was very helpful!

I think that’s a good idea with the oven, try to have it match the microwave too if you’re going to instal one.
and for colors like I said maybe see what people are liking and what is being done in your area. The most recent project I did was in a more rural area and so I chose a nice looking green cabinet color with black countertops. I’ll message you a picture so you can see how that looks.

Yeah, please send it over. I'm interested to see what it looks like. Thank you!

Hey can’t send it over message I guess so here it is

0 Reply

Bud Gaffney

Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes

3y

@Asha Carpenter no need to renovate!

0 Reply

Bud Gaffney

Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes

3y

@Asha Carpenter keep it as is and keep it rolling :)

0 Reply

Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

3y

Quote from @V.G Jason:

Quote from @Nathan Grabau:

I would not spend money that does not make you more money, unless you start to have an occupancy problem. I need to see 20% CoC returns to pull the trigger on rehabs where there is not an occupancy problem.

You're not getting 20% CoC on anything if you bought in the recent months. So throw that nonsense hard cap number out of the way. STRs you might be after year 1, but unlikely unless you hit an absolute home run. It's an extremely minute chance you're getting such a CoC return today or the in the last 6 or so months. If you have, prove it. Everyone loves to talk about their ROI, CoC, and other crap and don't relate it to TODAY'S market. If you got a target rate, and you're suggesting it as a benchmark as advice show how you've done that within the last 12 months ideally 6 months. It's hot garbage otherwise.

Let's stick to today's world, rates, environment and everything in between. @Asha Carpenter it depends on your current financial situation. Do you have the ability to renovate moderately right now without tapping into reserves or disrupting cash flow? You notice this is something you're going to have to do in the upcoming years. It's not going to come cheaper, but if you're not necessarily fit to do a reno right now it's not necessary. If you are fit, I would do it as the earlier is better. Your income will be capped in the short-term, but long-term you don't know. You've more or less got a designated floor and you're not going to have to worry about doing it later when you HAVE to and cost yourself vacancy. It's kicking the can down the road if you have the means to right now.

I suspect you and the OP are comparing apples to oranges.

I do not do a rehab unless the value added doubles the rehab costs. No way I would do it for 20% added value. As an example a $30K rehab (in my normal range per unit) at 20% would mean total value add of $36k or $6K for my effort and risk. I need a value of at least $60K ($30k for the effort and risk). To obtain a doubling of the rehab costs, my kitchen to be rehabbed typically looks far worse than that kitchen. The best return for rehab is for the most thrashed units or require reconfiguring the unit (remove wall for open concept, move wall to create ensuite, etc.).

I seem to be constantly rehabbing units and I do not do the rehab unless it projects value double the cost. I expect I will be doing one real soon. counters are old tile, the cabinets are pressed board, the flooring is trashed but this unit has a value of ~$700K (for the one unit). Hopefully you can see how a rehab on such a unit should return double my rehab costs. In this case I am going with $35K rehab budget (I may decide to do new HVAC which would increase the estimate) and expect at least $70K of added value (more if I do the HVAC). I have done this enough to have confidence that this rehab will create at least double my cost.

2 Reply

Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

3y

In response to the posts about rehabbing just before selling... I question how many people on this site have had a loan longer than 5 years. I have been doing this a long time and suspect I have never had a loan over 5 years. I do not know how many loans I have had in my life. I once did 8 loans on a day (6 hours of signing). I did two on the same day last time I closed on a loan.

Why is the length of time holding the loan of importance? Because at refinance the property gets appraised. The value is extracted at that time. Ideally you rehab, rent (with increased rent amount for the rehabbed unit) and refinance shortly after the rehab so that you extract much of the value add immediately. However, with the recent rate increases, in many cases the refi does not make sense to do at this time. Does this mean that adding the value from the rehab and obtaining the increased rent is not worth doing? Not in my opinion. I would get increased rent for the rehab and when I refinance in the future, I will extract the value of the rehab. Tenants should not be destroying units without paying for the damage. I expect to be doing 2 rehabs in the coming months that historically I would refinance shortly after the rehab. I will not be refinancing these soon unless housing appreciates >20% this year in my market or rates drop significantly (I would think both unlikely for this year). This does not imply that the sweat equity is not present, it just implies it is not converted to currency at this time.

Now for the OP's question... I would not rehab based on the small info I have. The one picture the kitchen looks too nice to achieve great sweat equity and you indicate that you are unlikely to get additional rent (which I find strange).

1 Reply

Matthew Paul

Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes

3y

I see no reason to touch the kitchens . You are renting a house , not putting your personal touches on a home . Tenants have the potential for destroying things . Clean neat and working is whats needed . Maybe new paint . Floors ? unless they are severely damaged the most I would do is a light sanding and a light coat of poly . Most likely not .

I am selling my house , been here 20 years ,Class A neighborhood , great schools and ammenities and things are now dated . I will be fixing things . BUT I an not going to paint or update anything . WHY ? Because the next family will have different taste in colors , may want to do different things , why waste time and money on something they will re do . I wont see that much return if any on those improvements . The buyers can do the house to their taste .

My rentals are class B . I dont rent houses , I rent locations . Mainly I rent good school districts . Dated kitchens and bathrooms dont make much difference

2 Reply

Conrad Cortes

Real Estate Agent · Houston, TX · Member since 2020 · 56 posts · 34 votes

3y

@Forrest T Schue

I like that idea. At minimum it helps with marketing.

1 Reply

V.G JasonPro Member

Investor · Member since 2022 · 3k+ posts · 3k+ votes

3y

Quote from @Carlos Ptriawan:

Quote from @Asha Carpenter:

Quote from @Forrest T Schue:

What are you thinking of doing to the kitchen? Any way you could meet in the middle and to a light remodel? Maybe just refinish the cabinets, and go with a new countertop and updated appliances. Look at some local trends for colors, or what the building next door is doing, and give the people what they want without breaking the bank. Doesn't look like it needs much.

P.S Something I also like that is pretty good bang for your buck is installing an over-the-range microwave. It frees up countertop space, looks good, and can vent right out through your hood fan ducts.

Best of luck!

I'm thinking of changing out the gas stove to black and stainless steel to match the fridge. I'm a bit stumped on what color to pick for updating the kitchen cabinets. I was thinking of a taupe with black hardware, black countertop but worried if those colors would compliment the flooring? I absolutely love the microwave range idea - that was very helpful!

What you really need to do is basically make a plan when you would sell the property and predict the sale price target. All these appliance matching color thing is realy good idea when it's owner occupant or flipping house so ready to sell. Lets say you plan to sell in March 2026. You started rehabbing the house by December 2025. If you rehab it now, you would need to rehab it again when you sell anyway.

Completely agree. Let the tenants ruin the house, prepare it prior to selling. For now update the HVAC, water heater, big capex stuff that needs to be kept up and not fixed last minute.

2 Reply

Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

3y

Quote from @Dan H.:

In response to the posts about rehabbing just before selling... I question how many people on this site have had a loan longer than 5 years. I have been doing this a long time and suspect I have never had a loan over 5 years. I do not know how many loans I have had in my life. I once did 8 loans on a day (6 hours of signing). I did two on the same day last time I closed on a loan.

Why is the length of time holding the loan of importance? Because at refinance the property gets appraised. The value is extracted at that time. Ideally you rehab, rent (with increased rent amount for the rehabbed unit) and refinance shortly after the rehab so that you extract much of the value add immediately. However, with the recent rate increases, in many cases the refi does not make sense to do at this time. Does this mean that adding the value from the rehab and obtaining the increased rent is not worth doing? Not in my opinion. I would get increased rent for the rehab and when I refinance in the future, I will extract the value of the rehab. Tenants should not be destroying units without paying for the damage. I expect to be doing 2 rehabs in the coming months that historically I would refinance shortly after the rehab. I will not be refinancing these soon unless housing appreciates >20% this year in my market or rates drop significantly (I would think both unlikely for this year). This does not imply that the sweat equity is not present, it just implies it is not converted to currency at this time.

my though process is exactly the same with some adds-on, that's why in CA I would rather live in flip after fixing it. Why ? because I could get 4-percent something rate so I don't have to refi, first. Second, when I sell I don't get tax hit as well.

I got really lucky in this aspect. Got a home with free ADU lol, I may not even want to move maybe because from one home my actual rent is only 1200 bucks lol

0 Reply

Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

3y

Quote from @Matthew Paul:

I see no reason to touch the kitchens . You are renting a house , not putting your personal touches on a home . Tenants have the potential for destroying things . Clean neat and working is whats needed . Maybe new paint . Floors ? unless they are severely damaged the most I would do is a light sanding and a light coat of poly . Most likely not .

I am selling my house , been here 20 years ,Class A neighborhood , great schools and ammenities and things are now dated . I will be fixing things . BUT I an not going to paint or update anything . WHY ? Because the next family will have different taste in colors , may want to do different things , why waste time and money on something they will re do . I wont see that much return if any on those improvements . The buyers can do the house to their taste .

My rentals are class B . I dont rent houses , I rent locations . Mainly I rent good school districts . Dated kitchens and bathrooms dont make much difference

so I just sold a house, we used to have beautiful crown molding, it's painted white before. Come the "stager" for open house, he said for the home to exceed the sale price , the are behind crown molding should be painted gray/blue. Just three days after putting it to MLS, we got offer. After the closing the buyer wanna repaint the blue crown moding with white color.

...even stager/realtor got it wrong many times.

1 Reply

Orkeem Davis

Real Estate Agent · Englewood, NJ · Member since 2017 · 93 posts · 31 votes

3y

I'm also a New Jersey real estate investor with several doors. You need to have a quality home as a rental if you want to attract quality tenants. It takes money to make more money. I would strongly advise you to consider upgrading the floors and go room to room making the necessary upgrades -- it will payoff.

1 Reply

Daniel VineisPro Member

Real Estate Agent · north jersey · Member since 2018 · 49 posts · 45 votes

3y

Hey @Asha Carpenter This is how I normally look at updating my units. I look at how much I can currently rent it out for. Then I look at top of the line rentals and see what they rent for and what I would have to do in order to make my unit comparable. Rule of thumb I like to make my money back in 2 years. So if I have to put $5,000 into it I would want to see the difference between what I can rent it for now and what I can rent it for after repairs to be around $200 a month. Now this math wont normally work out if you are doing large repairs like a new bathroom or kitchen. So when I do those repairs I extend the window in witch I expect to make my money back. But I typically wont make those upgrades unless I have a ulterior motive. Most of the times when I do large updates it isn't to increase the rents its for one of these two reasons. Reason 1 I plan on refinancing or selling the property. If doing large updates will net me more money or get me the number I need when I refinance I will do it. Reason 2 if it drastically improves the quality of tenant that will be looking at my unit. In none landlord friendly states the quality of tenant you attract is Key. If making large updates puts you into a drastically better tenant pool then absolutely do it. It will save you so much money and time in the long run.

0 Reply

Ray Hage

Investor · Fort Lauderdale, FL · Member since 2020 · 1k+ posts · 755 votes

3y

Quote from @Asha Carpenter:

I recently acquired a two family home: 1 bed/1 bath and 3 bed/2 bath. Across the street, a brand new apartment building are completing their build and rentals will be available in April. Their rental prices are: 1 Bedroom from $1695, 3 bed and 2 bath from $2600 meaning my rental prices will have to be significantly less.

The area has a lot of potential but not developed as of yet. The multi-family is in good shape just needs a bit of paint and the floors need to be sanded. However, the kitchen could do with some upgrading. Even with the upgrading, my rental income will still be capped (1bed $1500, 3 bed $2300). Appliances will be upgraded.

Do I spend the money now and upgrade the kitchen even though it won't increase my rental income or should I wait until the area has developed more so the money I invest in the kitchen will actually give be a better return in my rental income?

Absolutely do not spend more money unless it makes money or is a safety issue. As a landlord and investor, that should be one of your concern. I would wait until the market demand goes up and then you renovate and rent out for more.

0 Reply

Charles Sotelo

Member since 2023 · 10 posts · 0 votes

3y

@Asha Carpenter I have something that would be perfect for you. If you don't know all the ins and outs of self-managing.

0 Reply

To renovate or not renovate?

To renovate or not renovate?

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