Investor · Great Barrington, MA · Member since 2015 · 153 posts · 39 votes
Anyone else in the same boat? I've been wanting to renovate my home kitchen and bath since I purchased my coop three years ago, but I acquired two multi-families in the fall and have been addicted to making improvements to command higher rents. I'm still investigating the wisdom of that strategy with my first round of improved units about to go on the market.
Among the changes I'm making:
Pulling up old grey w2w carpeting and refinishing the wood floors underneath
Pulling up vinyl flooring in kitchens and bath, replacing the completely rotted out sub-flooring underneath, and replacing with tile
New Wolf base-level (but solid wood) kitchen cabinetry, sink/fixtures, and quartz countertops
Many miscellaneous repairs to moldy/rotted walls in the baths.
My hope is to realize an incremental annual premium equal to 15-20% return on my invested capital.
Am I on a fool's errand? I know it's highly dependent on location. The properties are in an A neighborhood, but the overall demographics of the county are flat, and most renters work in the second home service or non-profit economy.
And for me there's something about feeling a sense of pride in what I'm offering.
I also don't plan to live on cash flow for at least 5-7 years as I have a good paying full time job.
If you want to update your kitchen and baths, do it. You know it won't make you any money, but if cooking eggs in a 15,000 kitchen and pooping in a 10,000 bathroom make life worth living, go for it.
You know it's not though, and that's why you're putting that money to work.
Every one of my tenants have a better car than me and live in new or < 15 year old home. I'm okay with that. Another saying is, "The carpenter's home is never finished."
My business plan dictates that any improvements/upgrades must cover the cost of the improvement in 2 years through higher rent or it is not worth the investment.
This does not necessarily apply when preparing a new purchase for market as there are usually neglected items that simply need to be addressed. Those needed maintenance items will be geared to the market and the cost will have been reflected in the purchase price of the property..
Every decision is a business decision based on your particular business plan. Bottom line, money, is the only factor to be considered. If it doesn't pay you don't do it.
Thanks, @Thomas S. In this instance I'm also thinking about the wisdom of going with the cheapest flooring option in a bathroom, as evidenced by the completely rotted out subfloors. Maybe that proves it worked out well for the previous owners, although in both cases I got the properties for substantially below asking
To appeal to "A" tenants or even "B+" tenants, don't go cheap. Get good quality that will last. It's not just the materials, it's also the quality of workmanship that determines how well your improvements will hold up. You're doing good work. Love the refinished hardwood floor and the beautiful original red brick fireplace! I love seeing older homes restored to their glory.
We're in the same boat... many of our rentals are in better shape than our own home... what's that saying about "the cobbler's children have no shoes?"
If you want to update your kitchen and baths, do it. You know it won't make you any money, but if cooking eggs in a 15,000 kitchen and pooping in a 10,000 bathroom make life worth living, go for it.
You know it's not though, and that's why you're putting that money to work.
Every one of my tenants have a better car than me and live in new or < 15 year old home. I'm okay with that. Another saying is, "The carpenter's home is never finished."
I don't know if you are going to get your money out of kitchens and bathrooms. In the single families they would help you sell, but hardly ever warrant higher rent. Although they do attract people making it easier find great tenants. What i'd second you on is hardwood floors. Refinished but not stained. I always do that. I found them extremely cost effective in the long run. They last 5-10 years and a lot of times all needed is clean, buff and re coat. Good luck
Thanks, everyone. I also have a weird standard...I wouldn't live in an apartment with w2w carpeting, so why should I offer one as a landlord. Possibly a strange standard to uphold, but it makes sense to me. Not that I'm going to renovate every unit... I have another carpeted unit coming available and I'm just planning to touch up paint, clean, and re-rent.
@Marcia Maynard some of my mid west vendors that I finance will do kitchens and baths as nice or nicer than medium priced new builds here In Oregon and Wa.
so in those areas were there is competition for the best tenant.. what are they going to choose brand new kitchen and bath with granite and stainless appliances. and a fully tiled bath include shower
or 20 year old formica with burn stains in it... and cruddy old white appliances.
this is what todays turn key guys are doing in some markets.
other markets not so much.. they will spend the money on mechanicals and go with small cheap kitchen and just bottom end bathrooms but that is also what their competition is doing and what the tenant expects.
Michael Healy that's a good question. Not easy to answer. I recently bought a new house and I spent 12k on cabinets and granite. I have installed wolf cabinets before they are good quality. If I used wolf in my house I would have spent 40k just on cabinets....my kitchen is 54' linear feet.
I've been in your shoes before with renovating rentals. You'd be best served by doing the numbers yourself and make your decision based off numbers. In this business numbers are the only thing that really means anything long term.
Here's what I did.
When contemplating renovations I offer compensation to an RE agent for BPO on the increased value and I also consult with rental agents about the increase in rent from Reno work. Then I try to balance what the market will pay against what I can afford.
I had a problem with my 3 family 8 years ago. Around 2009 I was having problems getting good tenants. My rents were undermarket but I couldn't seem to get good tenants, even when I listed them below market. The agents would tell me the baths and kitchens were outdated and other landlords were offering better looking apartments.
So Five years ago I spent 80k on Renovating an apartment and Improvements to common areas(new staircases, lighting and exposing brick in hallway). I increased the rent from 1050 to 2700 after Renovating one apt. I was looking to rent at 3000 but the area wouldn't support this. My mistake. Afterwards I decided I had spent too much. I had regrets.
Last year I renovated 2/1 unit in Brooklyn paid 60k for the Reno. That apartment was rented at 1400. The new rent was 2800. This year that tenants lease will increase to 3000. After the Reno I again felt I spent too much.
Right now I'm in the second phase of renovating a larger 3/2. The rent was 1450 before first phase (16k 6/2016) after first phase the rent went to 2850. Now I'm spending 40k on the second phase, the tenant has agreed to pay 4500 a month....this tenant is a corporation that's does short term rentals. However they pay market rates so even if I were to put it in the market I would still receive the same rent. We consult with an agency to determine FMV and they will pay no more.
This is how I feel 8 years lawyer.
I was able to increase my cost basis, get a larger depreciation number and increase rents. I spent 180k on the renovations.
My gross income went from 3,900 to 10,500. My operating costs went down on the utilities with HVAC but went up from taxes so it was almost a wash.
The real win was in the tenant side though. I have the highest quality tenants I've ever had. I have very little maintenance because electric, plumbing, HVAC, kitchens and baths are all new.
In my area investors will pay 15x NOI for a building like this. So the bottom line is that now I have less hassle and I get 10500 in gross after spending 195k.
I look at it this way. Would I buy a house for 195k that grossed 6600 a month? In a minute.
Looking back now I'm glad I spent the money on the first and second renovations. So I'm pretty sure I'll be happy with the last one as well. I did manage to decrease the amount of time to get my money back on this last one and that really makes me satisfied.
I am in the same boat-- we make our rentals look beautiful, and sometimes I also think-- why are my rentals nicer than my house?! We just did porcelain tile in a huge kitchen and large laundry room, and I'm just like.. wow!!! I want this!
Kitchen and bath are the smartest places to put it, so many people come and say they want it for the kitchen or bath.. so take pride in your work! Take pride in giving someone a beautiful place to live, and the $$ will come! The better you make it look now, the easier long term you'll have in renting it out!
Keep up the good work and take pride in what you're offering!
@Michael Healy here's a before and after on a Reno I did. The rent before was 2850 after is 4500. This is after phase 1
Below is final rent is now 4500
Like I said though I would treat this like it's a new purchase. If I were you I'd be comparing doing the Reno to purchasing another multi. So if you look at it that way you might end up finding you get greater ROI in doing work to your property. If not then you just find another property and put the money there.
@John Hickey wow! That looks great! Did you uncover the brick? What material is the counter top? I do get a real pleasure out of seeing spaces transformed.
@Michael Healy Thanks very much this is one of my favorites so far.
I did uncover that brick, but it was ten years ago when I first bought the building. I lived there myself and then rented it the last few years. That photo was my old kitchen. I moved the kitchen so I could change the layout. That counter is citi quartz Orlando. $39. PSF. I have a granite guy I have been using for ten years now he is very good.
