# C Neighborhood: What rehab additions will increase \$Rent/mo?

26 Replies

We are doing our first C Neighborhood rental and are estimating ~\$650/mo for a 2bd/1ba/1300sq.

I was told if I put appliances into the house then that generally will get us a bit more in rent/mo. Understandable, but I also hear people frequently steal these appliances if they are evicted or leave.

Secondly, I am considering putting wood vinyl planks throughout the living space which would cost an extra \$1200 to do.

We are a little below our budget for the rehab and was wondering if this could bring in an extra \$50/mo in rent?

Any other suggestions would be helpful!

My theoretical formula for selling the houses turnkey would be: Rent Rate / 0.0125 = Sell Price (Conservatively)

So an extra \$50/mo would be an additional \$4k in sell price.

Originally posted by @Taylor Jennings :

My theoretical formula for selling the houses turnkey would be: Rent Rate / 0.0125 = Sell Price (Conservatively)

So an extra \$50/mo would be an additional \$4k in sell price.

Is this formula for cash buyers? If you're dealing with SFRs and conventional financing, then the rental income does not really play any role in the valuation, just the approval (DSCR may be considered for investment loan). Appraisals of SFRs are almost 100% based on comp prices. You may be able to talk an investor into paying \$4K extra for that additional rent, but you'll have a hard time getting an appraiser to agree your house renting for \$650 is worth \$4K more than the exact same house that sold down the block that was renting for \$600. \$4K might not be a big deal on an appraisal, but if you're getting \$100 more in rent or \$150 more in rent, you'll be hard pressed to get an extra \$8-12K in value as your formula suggests.

@Michael Seeker Great point.

The formula is for cash buyers, though I didn't think of the appraisal like you mentioned.

We were thinking of other exit strategies in the future and if we were to sell the house FHA then that would definitely be something we would need consider.

Thanks for the nugget!

I put tile floors and carpets in rentals I expect to hold for a while for low cost and durability/cost of install. I don't know about vinyl planks, but would you have to buy some extras and keep them around if one was damaged in the middle of your floor? Can you cut them in as repairs?

Otherwise, what would make YOU want to rent the home? What is 'un-sexy' about the interior?

If you think people might steal your appliances, you may need to do a more careful job screening your clients. Or you bought in a 'hood where you can't rent to people that you trust, and if that was the case for me, I would not want to hold the property at all....

I rent exclusively in C neighborhoods.

We had to call the police once over tenants loading our appliances, but we have had tons of move outs with no issues. Use low end appliances to help mitigate. Beware that even though tenants don't steal them, they usually do not clean them. And provide what is customary in your market. If you install appliances, the tenants could already have them if it is not normal for landlords to provide.

Plank flooring in the living areas give a great wow factor, people love them. Great in the bedrooms too if you will be allowing pets.

From my perspective the only thing that brings in higher rent is dishwasher, washer dryer, and garage or storage shed. Other things that could market it easier: flooring, wide slat nice blinds, ceiling fans (often trashed in C class properties, though), friendly porch with plastic chairs, etc.

@Tom V. Tile floors would likely be too expensive for C Class. What we did was aligned ourselves with what these hedge funds were buying in Indianapolis. So our vendor has plenty in stock if we ever need it in the future.

It's 36SF/box and runs us \$2.80/sqft and that includes install. We will be using the same stuff in the dining, kitchen, and bath.

Nothing is sexy about the house. It's C Class so the planks should add a little something to the appearance.

@Michele Fischer Nice tips.

I was told by another investor not to do the dishwasher or garbage disposal bc it's one more thing you're going to get maintenance calls about?

I figured a solid training in the beginning would help with making it clear on how to use those things and not to break them.

Planks in bedrooms too? Man that would be expensive to do them all over... We are doing a 16# nylon carpet with a 3/8 pad in living areas @ \$1.21/sqft.

No dishwasher/disposals in lower end rentals, just basic appliances fridge & stove.

I would market it for \$700-\$750 per month and assess if I need to reduce the price based on interest/feedback once it's actually on the rental market.

Originally posted by @Taylor Jennings :
...

It's 36SF/box and runs us \$2.80/sqft and that includes install. We will be using the same stuff in the dining, kitchen, and bath.

...

Planks in bedrooms too? Man that would be expensive to do them all over... We are doing a 16# nylon carpet with a 3/8 pad in living areas @ \$1.21/sqft.

You say that you have extra money in the rehab budget, but you seem to want to spend it on glitz rather than on durability. Having to change out that carpet once without it being covered by the security deposit will add up to almost the same as if you had just down the vinyl planks from the outset.

Here is another related thread; read my post there for my opinion on getting more than market rent:

@Taylor Jennings It's a no brainer to use the vinyl plank. Like @Steve Babiak says, one trashed unit with carpet coming out of your pocket pays for the upgrade. Also no carpet cleaning with vinyl plank leaves you with more SD to use on other items. Carpet is so last century and tenants know it. I would say that the vinyl plank would actually stand the best chance of bringing you more rent.

I totally agree that garbage disposals are a no go. They create the most calls for service.

Some landlords I know furnish no appliances but allow tenants to rent appliances from them (might not fly in your area). They buy cheap and the tenant ends up paying for the appliance before the first year is up. It's a nice way to generate higher rents and some extra cash flow.

Put in the wood vinyl floor, it will save you in the long run if the alternative is carpet. This not only goes for C class property but all property. I used to put carpet in my Rentals and got so sick of it getting ruined.

@Andrea M. Thanks for your feelings on the matter. I was nervous about the dishwasher. I figured I would come in around those rent rates starting out too. I know some other turnkey companies locally do all vinyl layovers so this sets ours apart.

@Steve Babiak @Bill S. I can see planks in the living room no doubt, but they bedrooms too? Personally I wouldn't like stepping on to cold floors every morning but hen again I'm not living there...

@Alex Craig sounds like there is a consensus. Are you saying to do the bedrooms like this as well?

@Taylor Jennings Yes the bedrooms too. If the floors are cold they put down rugs. They take the rugs with them when they move and you don't have to clean rugs. Saves your floors too.

You forget tenants. If the floors are cold they turn up the heat.

In a C neighborhood, I'm thinking monthly rental rates need to be closer to 2%/mo. as opposed to 1.25%, with the higher associated turnover/collection losses/damages, etc. So, I think how much a "rise in rent increases value" should be more like a factor of 50 times monthly rent(2%), as opposed to 80 times monthly rent (1.25%), but your market may be different. I agree with the vinyl plank vs carpet, one carpet replacement and you're at the same dollars.

If you allow pets and small yappy dogs move in, you will be replacing the carpet with every turn over for sure. They don't potty train well. We have started gradually adding plank in the bedrooms, and tenants actually prefer it. It also helps with allergies; asthma and allergies are a big issue with lower income.

I'd say the dishwasher depends on what range of C class you are in. Most of our units we have stopped putting in ceiling fans, so would never put in a garbage disposal or dishwasher. They bring the dishwasher on wheels if they want it that bad.

But we have one property that is nicer. It is C class due to the neighborhood rather than the unit and we target it as a great deal to middle class rather than low class. That duplex has garbage disposal and dishwasher and over several years have only had one call for each in only one unit. Your square footage sounds very high compared to my units, so wondered if you were higher on the spectrum.

@Taylor Jennings No, I just do it in high traffic areas. I figured bedrooms get less wear and tear and furniture is covering the majority of the space.

I offer my units at market rent and don't mentioned the appliances in the ad. When the prospects walk through and they ask about the appliances I say that most of our tenants have their own but the landlord will supply them [stove & fridge] for only \$49 per month. If they agree, I go to the local used appliance store and pick them up for under \$400 for the pair. They pay for themselves in 8 months and then start providing extra cash flow.

If the tenant balks at the extra price I start offering appliance discounts or free appliances if they sign a 2 year lease. If they still won't bite and are good prospects, I'll throw them in to get the lease signed.

About 70% of the tenants will pay extra for them by going this route. Otherwise, if you show the unit with them installed you can't negotiate AND you risk them being stolen when in a C neighborhood.

Laminite wood - be sure go with a higher grade in the kitchen and you MUST glue all the joints to keep the moisture from curling the planks and causing them to seperate.

I do the laminate wood in the family room & hall. Vinyl in the kithchen and baths. Finally, carpet in the bedrooms.

Of course, as I've told you in the past, I now stay away from sub \$700 rentals in Indy and don't have the issues with carpet being destroyed.

I've seen landlords just pain the slab on low end rentals! It's hard to destroy concrete...but it can happen.

One more thing @Taylor Jennings , it sounds like you have enough square footage to make it into a 3BR? This would net at least \$75 more per month and wouldn't cost that much in rehab.

Just a thought.

@Bill S. I guess the rug makes sense.

@Wayne Brooks I can see where you're coming from on the formula. I feel a 1.5% is a happy median? That's a 10.8% CAP with 40% Expenses. Selling turnkey at 2.0% is tough...

@Michele Fischer Good point on the dishwasher. Why not the ceiling fans though? If the ceiling fan is existing and doesn't need to be replaced, should we leave it?

@Alex Craig Your model is what we are deciding between. We had an unforeseen \$5200 come from fixing the foundation so it's tough to push another \$1700 for planks everywhere right now.

@Shawn Holsapple I like that technique for getting an extra \$50/mo. I think we'll implement that.

As for the sub \$700 rents, this is right at that borderline. I thought about turning it into a 3bd/1ba and with you suggesting the same thing I think it's worth getting a quote on. Thanks for that!

Ok two more questions for you all:

1. Do you replace all mechanicals if they are 5+ yrs old OR would it be worth keeping them if they still work and simply attach a 3yr warranty (3yr+?) for Turnkey Buyers?
2. If the basement leaks, but there is a drain in the center which typically prevents it from flooding up, would you add a \$1000 sub pump anyways?
1. *It's a full basement, unfinished, and will definitely be used for storage. We just spent \$5200 on foundation repairs and if we consider doing another \$1k in planks and another \$2k for adding a closet, wall, and door for a 3rd bedroom then we are really pushing our margins on our first turnkey flip...
Originally posted by @Taylor Jennings :
We are doing our first C Neighborhood rental and are estimating ~\$650/mo for a 2bd/1ba/1300sq.

I was told if I put appliances into the house then that generally will get us a bit more in rent/mo. Understandable, but I also hear people frequently steal these appliances if they are evicted or leave.

Secondly, I am considering putting wood vinyl planks throughout the living space which would cost an extra \$1200 to do.

We are a little below our budget for the rehab and was wondering if this could bring in an extra \$50/mo in rent?

Any other suggestions would be helpful!

My theoretical formula for selling the houses turnkey would be: Rent Rate / 0.0125 = Sell Price (Conservatively)

So an extra \$50/mo would be an additional \$4k in sell price.

Hi Taylor,

I would be more focused on making sure the tenants will pay and stay rather than increasing the rent.

Especially considering its a C class area.

The rules tend to work very differently with these types of properties and areas.

Something that we always did was insulate the roof and walls which would in return lower the heating bill during winter months.

We always try to eliminate reason for an excuse to short or not pay the rent.

Our rehabs would always be very simple with the very basic materials. Everything would always be updated with the finish being a very clean and efficient home.

Thanks and have a great day.

@Engelo Rumora Thanks for your input! I figured by offering extra amenities within the house in the C Class neighborhood we may be able to find better tenants to live in them because the rent would be a bit higher.

What type of insulation would you put in? Did you do this only when the walls were off and down to the studs?

Originally posted by @Taylor Jennings :
@Engelo Rumora Thanks for your input! I figured by offering extra amenities within the house in the C Class neighborhood we may be able to find better tenants to live in them because the rent would be a bit higher.
What type of insulation would you put in? Did you do this only when the walls were off and down to the studs?

No problem at all.

A good property manager can get a reliable tenant as long as your rehab is decent.

We have been involved in hundreds of these deals and to be honest there really is no need to overcapitalize with extra's.

Most of the time when a tenant moves out you will need to carry out further work so the new tenants can move into a nice and clean home again.

We would make wholes in the walls and climb into the attick.

We would use the cheapest blower insulation bags from Home Depot.

Most investors won't invest in insulating because its not visible and they think they can get away with it.

I always suggest doing these invisible repairs upfront so you don't have to disrupt the tenants later.

Thanks

@Engelo Rumora What is the blow insulation running you?

Originally posted by @Taylor Jennings :
@Engelo Rumora What is the blow insulation running you?

Max cost of \$1,000 for entire house not bigger than 3 bed.

That's for the bags, labor and renting the blower for the day.

Thanks

Originally posted by @Taylor Jennings :

Ok two more questions for you all:

1. Do you replace all mechanicals if they are 5+ yrs old OR would it be worth keeping them if they still work and simply attach a 3yr warranty (3yr+?) for Turnkey Buyers?
2. If the basement leaks, but there is a drain in the center which typically prevents it from flooding up, would you add a \$1000 sub pump anyways?
1. *It's a full basement, unfinished, and will definitely be used for storage. We just spent \$5200 on foundation repairs and if we consider doing another \$1k in planks and another \$2k for adding a closet, wall, and door for a 3rd bedroom then we are really pushing our margins on our first turnkey flip...

If the furnance is over 5 years old AND looks like it's seen better days, then yes I replace. It only takes 3-4 expensive service calls on the old one to offset the cost of a new one!

Water heater, if it's not too rusty and under 7 years - it's border line. Otherwise, spend the \$400 to get one installed so you'll not have to worry about it for a long time.

Basement - don't forget unless the basement has an exit other than the stairs, it can't be a bedroom space per fire code.

I'd still install a sump pump even with the drain. Be sure to drain the pump out to the yard or ditch and NOT the sewer.

Like @Engelo Rumora said, low end tenants can care less about upgrades and they will tear it up anyway. So focus on a clean, safe living space that is tough and can withstand the abuse [becuase it WILL receive lots of it]

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