Oceans of paint and Acres of Carpet are bad. Limit the size of your rentals!

22 Replies

Thank you @Tyler McCracken for that phrase.

Anyway, ten years ago when I didn't know what I was doing when purchasing property, I bought a couple of four bedrooms with about 2700 Square feet of space in each.   While this makes the places slightly easier to rent, it means that I have seemingly oceans of paint to pay for and sometime, probably soon, I'm going to have to buy acres of new carpet.  

Since I could have gotten the same rent for an 1,800 to 2,000 sq ft house, my capex expenses on these properties are needlessly high.  

This is definitely one of the (many) lessons I have learned as a landlord.   

I agree with you @Cal C. , I manage 4 properties for my Father and I'm grateful he stayed small with his SFR's since I'm so involved. Huge SFR's look like trophy's to me, look nice but what is it really "worth." I think it also comes down to personal preference as I'm sure someone will come along and make valid points about how large sqft SFR are the way to go.

Rehabs and make readies absolutely cost more with a large house.  Sometimes they can be worth it though, when the rent premium is there.   I have a small house and a big house in the same neighborhood. The small one gets $875 per month and the big one gets $1425 per month. It has been worth it, even with the expensive make readies. 

@Cal C.  You've touched a subject near and dear to my heart.  I reached the same in the last year or so, and  I've been pruning my portfolio to get rid of these really big houses that are murderous on make ready.   (It's a real problem here in Texas where everything is bigger.)  I've actually come to the conclusion that in my area I generally do not want anything over 1500-1700 square feet.   My favorite houses are 3/2/2's that are 1200-1300 square feet.  Relative to rents, make ready is very reasonable.

In a lot of rental markets once you get past 3 bedrooms and 2 baths, you don't get much more for the increased square footage.

One thing I do believe you're overlooking is the appreciation.
Those larger homes are appreciating better.

It also seems odd to me that a 4/2, 2,600 sq ft would rent for the same thing as a 3/2, 2,000 sq ft so I don't know that I'd agree with that earlier statement that anything over 3/2 is going to get the same rents in most areas.

What I would agree with is that I'm not sure I'd want to have too many 2,600 homes even if they do have a rent premium (here in Illinois I would argue that they definitely have a rent premium).  Mostly, because I don't like being in the upper ranges for rents.

To me, thats the bigger issue. How many people are in the tenant pool that can afford 1,600 to 2,000 a month in rent? Just doesn't make sense.  

To me, I also like to target the 3/2, 1,500 sq ft homes. Those are the sweet spot. I think 1,200 to 1,300 sq ft homes are a little on the small side for renting. But that 1,400 to 1,600 sq ft range is the perfect size. Big enough to have some space somewhere (either good size bedrooms, or living room, or kitchen) but small enough to rent at a decent rate (i.e. for me, 1,300 to 1,350).

One thing I'd add on the carpet. I have yet to see a house where all the carpet is trashed at the same time. Typically, its one or two rooms. And since I can't stand mismatched carpet in a house, I tend to put laminate in the room or two once the carpet starts to go.   Helps spread out the costs (i.e one room of laminats is far cheaper than an entire house of carpet) and at the end of the run, you'll have a whole house of nice laminate.

But I still think there's a value in having some of these larger homes in the portfolio. Great appreciation - typically - good equity capture, easier management as the tenants that tend to be able to afford those rent amounts are easier to deal with (based on my experience so far anyway).

So I would probably agree that an entire portfolio of houses that size may not be a great idea, I do think having a few of them in with some of the bread and butter houses is a good way to go..... At least for me.

Absolutely limit the square footage of your rentals. The little extra rent of bigger houses rarely justify the higher cost to remodel/make ready. More appreciation is not seen in my area. I know a local investor that even likes to keep a few 2/1's because of the lower maintenance and likelihood to have a single person (with NO kids) renting. He says "give me a nice 2/1 any day".

I agree with the square footage as well. I like townhomes for that reason. Interior and exterior is smaller then SFH's and they can cash flow well.

This is an excellent point @Cal C. , especially for a newbie like myself. It will be a lot more desirable to acquire something not too huge and manageable than swimming in the oceans of paints and walking in the acres of carpet/laminate. This is something I will have to keep in mind when searching for the first few. 

Originally posted by @Mike H. :

One thing I do believe you're overlooking is the appreciation.
Those larger homes are appreciating better.

It also seems odd to me that a 4/2, 2,600 sq ft would rent for the same thing as a 3/2, 2,000 sq ft so I don't know that I'd agree with that earlier statement that anything over 3/2 is going to get the same rents in most areas.

What I would agree with is that I'm not sure I'd want to have too many 2,600 homes even if they do have a rent premium (here in Illinois I would argue that they definitely have a rent premium).  Mostly, because I don't like being in the upper ranges for rents.

To me, thats the bigger issue. How many people are in the tenant pool that can afford 1,600 to 2,000 a month in rent? Just doesn't make sense.  

To me, I also like to target the 3/2, 1,500 sq ft homes. Those are the sweet spot. I think 1,200 to 1,300 sq ft homes are a little on the small side for renting. But that 1,400 to 1,600 sq ft range is the perfect size. Big enough to have some space somewhere (either good size bedrooms, or living room, or kitchen) but small enough to rent at a decent rate (i.e. for me, 1,300 to 1,350).

One thing I'd add on the carpet. I have yet to see a house where all the carpet is trashed at the same time. Typically, its one or two rooms. And since I can't stand mismatched carpet in a house, I tend to put laminate in the room or two once the carpet starts to go.   Helps spread out the costs (i.e one room of laminats is far cheaper than an entire house of carpet) and at the end of the run, you'll have a whole house of nice laminate.

But I still think there's a value in having some of these larger homes in the portfolio. Great appreciation - typically - good equity capture, easier management as the tenants that tend to be able to afford those rent amounts are easier to deal with (based on my experience so far anyway).

So I would probably agree that an entire portfolio of houses that size may not be a great idea, I do think having a few of them in with some of the bread and butter houses is a good way to go..... At least for me.

I certainly thought that the bigger size would lead to greater appreciation.  Sadly that hasn't happened in fact my house is still $25K under what I bought it for in 2005.  There are houses in the same subdivision that are a thousand square feet smaller and have the same number of bedrooms and baths going for slightly less than houses my size.  Basically $130K for a 1,700 sq ft house and $135K for a 2,600 sq ft house is  the average for recent sales in the same subdivison. BTW the 1,700 sq ft houses are renting for the same price as my 2,700 sq ft house and mine is in good condition.  

@Cal C.  

We have had some better experiences with some larger properties, getting premium rents and lengthy tenancies.  We've rented 4 br for over $2,000, in an area where 3br rents are in the $1,000 to $1,200 range typically.

We've also had some long standing tenants, including a 30 year, a 21 year, a 17 year, and other tenants over 10 years.  One large house had a tenant for 7 years, who probably would have stayed longer but took advantage of the $8,000 first time home buyer credit.

PS

We only occasionally paint during a tenancy, most tenants don't want the disruption of painting while they and their stuff are living there.  we have done spot or certain room repainting, but typically save the whole house repaint for between tenants time.  And we've never replaced wall to wall carpet during a tenancy, though a tenant did replace all the carpet themselves in a  rental.  In general we are getting away from carpet, using hardwoods and laminates.  When the 21 year tenant moved out to another house that I sold them, we hadn't painted or carpeted in the entire 21 years.  We had to go in and replace all the floor coverings, taking out all the old carpet and vinyl and replacing with new vinyl and laminate.  We replaced the kitchen, all the light fixtures, a deck and other features.

@David Krulac  If asked for $800 more in rent for my four bedrooms then they would be sitting for a very very long time, perhaps as long as some of your tenancies.  :) 

I may get one more tenancy out of the current carpet, if I can find a good carpet cleaner.  But after that it will be laminate.  

@Cal C.  

I also have an excellent carpet cleaner, used to be a tenant and used his truck based cleaner to clean his own carpets when a tenant.  He had the cleanest carpet in tenant history.

We've used them on several flips last year with great success.  One place had a big red stain on the living room carpet, I thought it was possibly red wine, which they were totally remove.  At another place the carpet was filthy black, like people never wiped their shoes when coming in from outside.  They were able to remove all of that ground in dirt.  The painter who was working on the exterior that day was shocked and got them to go to his house, because he was so impressed with their work.  In both of those flips were able to save the existing carpet and the costs of replacements.

In some other places that had wall to wall when we bought we were able to remove the carpet and expose existing hardwood floors.

Does your carpet cleaner come to ATL?  :)

there are plenty but finding a good one is the problem

Agree - We're looking to add to our rentals, and this time we're looking for something in the 1400 to 1600 sqr ft range.  The 2K+ sqr ft homes just cost too much to keep up.

For flooring, we have moved away from carpet and use mostly tile or vinyl plank.   Vinyl plank looks great, tenants love it, and it has proven to hold up extremely well.   The first time we had vinyl plank installed in a rental was back in early 2011 and that flooring still looks like new.

@Kevin C.  

Vinyl plank doesn't fly in upper level properties.  And tile is not that common in this part of the country, for 1 thing its very cold, especially on sub freezing days.

I always prefer sfr in the 1,100-1,400 range compared to 1,600-2,000 range. There is very little difference in rent, I can save approx $20,000 in price for wasted sqft and less maintenance for me. 

I install vinyl plank allure flooring instead of carpet. It looks and holds up great. 

I like 2/1 houses. Great for those without kids, or maybe one kid, or an older couple whose kids are already grown.

Our rentals with vinyl plank are in the $1600 to $1800 a month range.  

Tile is pretty common in this part of the county.  It's cold underfoot in the winter, but our winters are mild.  Solid hardwoods are popular as well, but not something I'd put in this level rental.

Not sure where the upper level property break would be, but these rentals are in solid desirable areas and have no problems attracting quality tenants.

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