How much rehab do I need for a rental?

3 Replies

Hi, fellow investors! Please help me to understand how much rehab do I need for my new property.

Formally, the house is move-in ready: everything is functioning. But it was built in fifties, and the inspection report says that all the major systems like HVAC, plumbing and wiring are at the end of their life. They might collapse any day, or might work for a few years – nobody knows.

Also, the appliances work well, but they are old and ugly looking. Bathroom and kitchen cabinets are ugly, too.

My first reaction was to plan the major renovation: full bathroom and kitchen remodelling, replacing HVAC, plumbing and electrical. But my business partner thinks that we should list it for rent as it is, and save reserves for future big replacements.

What does your experience says: will renovation help me to make more money on rent? Or it’s only the location what matters if the house is functional? Do renovated houses make substantially more rent, comparing to not renovated at the same location?

It’s not just a Rent price, it’s how long the house will stay on the market - that’s more important.

If done right from the start, you will have less vacancy and turnover time is shorter.

Besides, well done rental brings more money to the table

What tenants are you trying to attract? Is there a true value add in the property monthly? I typically will give myself the rule of reimbursing myself for improvements within 48 months. If I can raise rent $600 a month my rehab budget should be below $30k. I typically don’t take into account the improved equity position as a net because of the unforeseen with tenants/market. Additionally I’m primarily buy & hold though FYI. It sounds like you and your partner need to make the decision of the product you want out there, and get on the same page. If you want high end tenants, and they’re trying to be slum lords  that’s ok.... Many ways to do this Just maybe not together.