The problem with just slapping paint and carpet on a rental

12 Replies

I've been landlording a while now and I've now come to the conclusion that unless the numbers support a full rehab (and by "full", I mean completely redone the way I want it), I'm not interested in doing it.  I've bought one or two properties where I fixed them up, but the numbers didn't support a full rehab so I told myself that's fine, I'll just gradually fix it up over the next couple of years.  (I was probably a little more deal hungry at the time so I deluded myself into thinking this was a good idea.)

The problem for me is that I would forget about it (or in my mind downplay what I needed to do), the unit would come vacant in a year or two, and then I would be looking at a very large "make-ready" (I put "make-ready" in quotes because the bulk of it is simply deferred rehab.  That large "make-ready" invariably comes due at the absolute worst possible time (like all deferred maintenance) and ruins your numbers for the year.  I kind of view it like a financial grenade waiting to go off.

If you are still in the acquiring mode, these kinds of grenades can really put a damper on your plans.  This all pretty obvious stuff, but I think psychologically it's pretty easy to fall into this trap, particularly when the downside is a year or two away.  I've since stopped doing this after getting slapped in the face a couple of times, but maybe others can learn from my mistakes.

If something you put off is a year away, you just take 1/12 the cost of that project each month and put it away.  Then, the cost of the project won't be such a shock because you've been planning for it.  Everyone should always put money away each month just for general repairs, but also for major items.

I don't disagree that's the correct way to do it, I merely pointed this out as sort of a psychological trap that's easy to fall into.  Moreover, I think for lots of little things that add up it's somewhat difficult to do.   (I'm not talking about one big repair, like a roof or an HVAC, which is easy to budget for).  It's the bunch of little fixes/upgrades coming due, i.e. death by a hundred papercuts that I'm talking about.  

I have been through similar situations, particularly with my earlier rentals and now I just rehab it at the time I purchase and figure it into my ROI. Generally the houses that I have bought are either forclosures or short-sales and need quite a bit of work to be habitable so fixing them up completely is not too big of a deal.

The houses look like new when done and since all the major systems have been repaired or serviced I have never had anything except minor make ready touch-ups since. 

As a bonus I find that you get better quality tenants with nicer places and they tend to stay longer which lower turnover helps pay for the up-front repairs as well long-term.

Honestly with the type of houses we have the repairs have to be done right away. So that being said we probably have large "Make Ready" repair coming because of carpet. So it will be a hit and that's part of land lording. At the time we have saved 20% off the purchase price for little "things" and repairs. So I will gladly get 50k off a house for a 10k repair, a savings of 40k. 

Its funny you posted this as just yesterday I looked at a 4 bed 2 bath house I could probably have for about $25k. It could technically be rent ready with $2-3k of work, but it would still be low end with faux wood paneling, sagging floors and an awkard layout. As it is now, it would rent for about $650-700 and be a 2% rule or better. My property manager really wants me to buy it and do upgrades a little at a time. I agree with @John Chapman that is is just better to do it all now and have a like new property without all of the upkeep issues of an old dilapidated place.

I decide to walk for now, but if it is still available after I finish my current projects I may do it and give it the update it needs.

Originally posted by @Austin Lee:

Its funny you posted this as just yesterday I looked at a 4 bed 2 bath house I could probably have for about $25k. It could technically be rent ready with $2-3k of work, but it would still be low end with faux wood paneling, sagging floors and an awkard layout. As it is now, it would rent for about $650-700 and be a 2% rule or better. My property manager really wants me to buy it and do upgrades a little at a time. I agree with @John Chapman that is is just better to do it all now and have a like new property without all of the upkeep issues of an old dilapidated place.

I decide to walk for now, but if it is still available after I finish my current projects I may do it and give it the update it needs.

I don't think leaving a property with "sagging floors" equals "rent ready".  Would you live in a house with sagging floors?

@John Chapman  

Completely agree. Do the hard work up front. You will generate economies of scale by doing everything right the first time.

On each successive property, I find myself spending more time "getting it right" prior to placing the for rent sign in the yard. 

A property that has been gone over with a  fine-tooth comb will rent faster and for a higher price. Tenants can tell right away when they walk in to a property. They also take better care of the property, because they know how much work went into it and that demonstrates your concern for the condition of the property.

Your return on investment will thank you.

This is what I needed to hear also!  We bought a foreclosure for our first rental and spent much more $ than we anticipated, but we redid EVERYTHING that needed doing to make it solid and clean.  It's now on the market (see my post about potential tenant medical debt) and we have attracted a lot of attention.  All the people who come through say how good it looks.

Originally posted by @John Chapman:

I don't disagree that's the correct way to do it, I merely pointed this out as sort of a psychological trap that's easy to fall into.  Moreover, I think for lots of little things that add up it's somewhat difficult to do.   (I'm not talking about one big repair, like a roof or an HVAC, which is easy to budget for).  It's the bunch of little fixes/upgrades coming due, i.e. death by a hundred papercuts that I'm talking about.  

I think this is also a way to face the real numbers when you buy. I have one buyer that is up to 40 doors. He is all cash on purchase and doesn't refi any of them. He goes all out on all the initial rehabs, even for the junkiest properties. Sometimes they sit for months when his crews are busy on other projects. But he doesn't put tenants in there until it's relatively bullet proof. He's done REO clean up and mini-rehabs for lenders for years and says it taught him how much he hates spending his time (and his money) on something that needs to be done over later.

I think that's a great point Kristine Marie Poe .  It really is deluding yourself as to the actual numbers of the acquisition/rehab.  Expenses that you are pretty much guaranteed to incur in the first 1-3 years really should count toward your initial capital expenditure.

If you cant afford to do it right , how can you afford to do it over .  I am working on rehabbing a rental , I am on budget , but over schedule by 7 months . My contracting business has been non stop with no end in sight .  But I am not going to cut corners or just get it O K  to rent , it will be done 100% before its rented . 

Originally posted by @John Chapman:

I've been landlording a while now and I've now come to the conclusion that unless the numbers support a full rehab (and by "full", I mean completely redone the way I want it), I'm not interested in doing it.  I've bought one or two properties where I fixed them up, but the numbers didn't support a full rehab so I told myself that's fine, I'll just gradually fix it up over the next couple of years.  (I was probably a little more deal hungry at the time so I deluded myself into thinking this was a good idea.)

The problem for me is that I would forget about it (or in my mind downplay what I needed to do), the unit would come vacant in a year or two, and then I would be looking at a very large "make-ready" (I put "make-ready" in quotes because the bulk of it is simply deferred rehab.  That large "make-ready" invariably comes due at the absolute worst possible time (like all deferred maintenance) and ruins your numbers for the year.  I kind of view it like a financial grenade waiting to go off.

If you are still in the acquiring mode, these kinds of grenades can really put a damper on your plans.  This all pretty obvious stuff, but I think psychologically it's pretty easy to fall into this trap, particularly when the downside is a year or two away.  I've since stopped doing this after getting slapped in the face a couple of times, but maybe others can learn from my mistakes.

And that is where it becomes easy to see how slumlords happen. Not necessarily intentional, just lots of deferred maintenance and "more important things" to spend the money on. 

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here