How Much Do You Improve Your Rentals?

[Brandon Turner]

I'm working on a blog post for the BiggerPockets Blog and I'm curious:

How nice do you make your rentals before putting a tenant in?

Specifically, I'm writing about turning a primary residence into a rental, but this question could apply to tenant turn-over as well.

I'll be taking some answers from this thread to pepper in quotes for my upcoming blog - so please, share your opinions!

[Joffrey Long]

Brandon,

I'll qualify this with the fact that there may be MANY correct answers for this. Here's the one that has developed over the decades for me:

On deciding how nice to make a rental in preparing it for rent, I have two primary areas I consider:

1) What kind of return will I get from the improvements I'm considering?

For this, I have to compare my condition or projected condition to competing rentals, how long an improvement will last, (Granite counter-tops versus an upgraded toilet paper holder) the trends in the market place, such as what tenants appear to be trending toward liking, how popular a particular item is, and wether I might get only the same rent as I would have, but possibly just get a better tenant.

Those are all bottom-line, figuring out the net dollars concerns.

2) How much time and aggravation it saves me:

Here, I go beyond just how many net dollars in extra rent I'll collect, versus the cost of improving, and I consider how much extra time it takes me to wait another week to rent it, or possibly how much time I waste dealing with a "b" quality tenant, when for an extra $1,000 worth of upgrades, I might have attracted an "a." (I make decent $ in my regular business, so more time saved can be converted into $$, when I'm not busy posting on BP.)

Also, (and this is maybe part of point 1) I consider how much more quickly I'll get it rented. Obviously, if the rent is $2,000 per month (remember, I'm in Southern California) and I rent it 15 days earlier, $1,000 that I spent is more than recovered since I don't have to pay the light bill on a vacant place, or incur more cost of marketing a vacancy.

Another item I've been running into lately is thinking way ahead, and wondering when the tenant gives their notice to terminate the tenancy, how will the unit or house look if I'm going to show it to prospects while they're still there? (which I often do) I LOVE to get those "back-to-back" rentals, where tenant A moves out on the 4th, and we're fixing up fast and tenant B moves in on the 10th. That's almost as exciting as as, well..........it's not that exciting, but I sure like it!

So if the unit is fixed up better, then when I do go to show it to new prospects, I'm more likely to get one of my quick turnarounds.

Brandon, was this what you were looking for? Hope this helped!

Joffrey Long

[Keith Schulz]

It depends on the rental. I've got one duplex that is nicer, newer, in a great neighborhood, and attracts good quality tenants. This one I try to keep in top notch condition. I feel like if I make it as nice as possible before they move in they maintain it that way.

I have another duplex that is in a less desirable neighborhood (but not bad), and it attracts so-so tenants. This property I try to have as clean as possible, and try to make it so the tenants respect it. However, the property is rather out dated (built in the 70's). I've done typical things like paint, flooring, and opened up one wall to make a better layout. However, I haven't updated cabinetry or bathrooms. I feel like I wouldn't get the return on the investment to modernize the place. I also feel like the tenants I attract there wouldn't take care of things like I'd prefer if I were to sink money into a quality remodel/update.

Keith

[Will Browm]

I rehabbed two homes this year for rentals. I overdid it a little on the first. I used two variables: 1) will this action garner more rent, better tenants or faster time off market; 2) will this action cause less needs, repairs and concerns while it is rented.

Not sure my example fits your request. These were not my initial home and I rent in Class C neighborhoods.

[Zachary Dosch]

The two things I look at are:

1. What is my competition doing? Is my rental being out classed by similar priced rentals and what is the market for the rental

2. How well the rental is functioning? I almost always go with more durable amenities over style. Usually they are one in the same but the most important things for me when I upgrade a rental are will this upgrade be safe & durable and what is my return on the money Im spending. I would much rather add a bedroom or bathroom rather than get more stylish carpet. I try to give the tenants a blank canvass to customize with their furniture, ect.

I basically try to have my rentals be versatile, efficient, safe, and durable because its what my market responds to.

[Joe Delia]

I try to have competitive advantages that aren't easily destroyed. Vacancy is the devil, and if little things like a garbage disposal will create less problems and give me an advantage, for not that much money, to me it's a no brainer.

[Mike H.]

Here's a quick checklist that I try to follow when I rehab my rentals. I see that other people have put some of the reasoning behind their rehab effort but I thought it would be good to have some responses at the detail level as well:

1) No gold in the light fixtures. Even if its perfect, gold is all replaced.
2) Replace all the electric outlet devices unless they look mostly new (and always replace all the lightswitch/outlet plates). New devices and covers along with a paint job go along way in making the house seem like new construction. Don't ask me why. But it just seems to work that way.
3) New appliances - black
4) When flooring is needed: Medium grade frieze for carpet in living areas, ceramic in kitchens and bathrooms although sometimes I do laminate in kitchen depending on the height/surface in connecting rooms.
5) Replace countertops if dated or damaged.
6) Paint all walls - but only paint ceiling if really bad.
7) Certifiy HVAC
8) Replace kitchen faucet but not bathroom unless really bad.
9) An upgraded ceiling fan in living room and master bedroom.

Thats typically my list and then I do what most of the others have mentioned above. What is my return if I want to do more? Will it help me get more tenants if I do something else? How am I doing on my budget? How much is the rental? (big difference in whether I will budge on an upgrade if the rent is 1,400 vs 1,100).

There are some rehabs where I end up doing more because I have extra money left in my budget (i.e. I had no surprises) so I don't mind spending that to upgrade the living room from carpet to laminate. Or to put in a new bathroom vanity where the existing one was still functional.

[George Paiva]

As others indicated it depends on the market. Our rentals are all located in blue collar markets. Usually between tenants we thoroughly clean the unit, paint ceilings and walls, replace all mini blinds, electrical plates and outlets/switches. If floors need replacing we do laminate/tile in bath/kitchen. We strive to offer a clean and better looking unit compared to the competition and we rent them competitively as well. Everything is done with a cost/benefit approach and to minimize repair and service calls. We don't put granite or stainless steel in any apartment as its just a waste of money. Like a lot of my friends say "Paint and Carpets"

[Seth Williams]

To Joffrey Long's point, any/all improvements that we ever make to our rental units will ultimately boil down to cash flow. If making an improvement (or paying more for a particular property) isn't completely justified by an improvement to our annual cash flow (to the point that it allows us to charge more in rent OR improve our vacancy rate), we don't do it.

Of course, this is easier said than done. It's not always easy to know exactly why one property sits vacant longer than another. And it's not always easy to know when a landlord is completely maximizing their revenue by charging as much rent as possible... but to the extent that we can reasonably predict this, we only make improvements to the point that they make financial sense.

I think it's also important to understand the demographic that you're marketing your property to. Just because YOU wouldn't want to live in a lower quality residence, doesn't mean there aren't hundreds of people in that market who would be more than happy to. Your standards may not (and probably doesn't) reflect the exact standards of the customers in your market. It's very easy to mistake our perceptions for what the market thinks, but it frankly doesn't matter if I would want to live my properties or not - it only matters whether or not my market considers the property to be in acceptable condition.

All of my rental units have extremely strong cash flow - and it's not because they're the nicest properties in the neighborhood. It's because I bought them at the right price, I understood each market reasonably well and because of that understanding, I don't go overboard with improvements, ever.

[Marc Bodinger]

Does anyone have a formula you use when calculating how much you renovate a unit? You don't want to go overboard and not be able to recoup the costs.

[Seth Williams]

I've got a rental property ROI calculator that I use. I'm happy to send it to you if you think it would help. I use it to input all the variables and determine what the projected cash on cash, monthly cash flow and ROI will be.

Having the calculator is helpful, but what REALLY matters is plugging in the most accurate data. Your projections will only be as accurate as the numbers you use in your calculations. It is VERY easy (and very dangerous) to just "shoot from the hip" and pull numbers out of thin air without verifying them. I always have to do a lot of homework to verify my inputs before I know I've got a solid deal on my hands.

[Account Closed]

@Seth Williams would you be able to forward me that calculator. I am in the market for my first investment and looking for something to calculate my return , I have been using a couple other sources and want to compare.

Thanks for the advice as well.

[Nathan Joens]

Originally posted by @Seth Williams:
I've got a rental property ROI calculator that I use. I'm happy to send it to you if you think it would help. I use it to input all the variables and determine what the projected cash on cash, monthly cash flow and ROI will be.
Having the calculator is helpful, but what REALLY matters is plugging in the most accurate data. Your projections will only be as accurate as the numbers you use in your calculations. It is VERY easy (and very dangerous) to just "shoot from the hip" and pull numbers out of thin air without verifying them. I always have to do a lot of homework to verify my inputs before I know I've got a solid deal on my hands.

What is your process for verifying that your inputs are accurate?

[Vicki Gleitz]

I am by no means a professional. I am here to learn how to help my youngest son invest in property. I find this all fascinating, but a bit overwhelming. I am so devoid of knowledge in this area that my posts are more often than not ignored.

But,I am an "accidental" landlord. We own a home that we rent out while we live in a travel trailer in the mountains [ we have serious health issues and this works out well for us]

We rent out our home. In two and a half years we have had 3 tenants [ one bought a home down the block, one was relocated at work, and one family still lives there] It is a blue-collar neighborhood in a small town. People here are not impressed by granite countertops, etc. This is what they are looking for and what we do to provide it.

Everything well maintained, newer, attractive, energy efficient appliances. Walls painted. Floors in good shape. We have benches around trees and a small wishing well, which everyone loves.

This is so unprofessional,but this works for us. We do a few things to make our tenants feel at home. Because we used to live there, we notify the neighbors and ask them to stop by, maybe bring a cake or something. We make a list of phone numbers for schools, stores, churches, the best baby-sitters, etc. And then it's time for the fun part. When we interview, we remember the little things they mentioned about their 6 year old loving "my little pony", the mother collecting teacups, whatever. And we build a gift basket that is personalized. We also add a gift certificate to the restaurant [which the owner gives me a big discount on] and a plate of home made cookies.

Next to the basket, I have a decorated box that has some of my Avon products, toilet paper,paper towels, one towel, one washcloth, one bar of soap, several toothbrushes and toothpaste, a small pack of tylenol, stuff like that.

All 3 families have been ecstatic over what was waiting for them. They have all 3 been great tenants. And, I somewhat have a waiting list. [not technically a waiting list but a list of numbers from people who say to call them when the house becomes available]

Clean, maintained and welcoming, that is what many people are looking for.

[Seth Williams]

@Account Closed - I just sent you the calculator. Check it out and let me know what you think.

@Nathan Joens - You can see an overview of how I verify my inputs here.

[Angel McClinton]

@Seth Williams would you be able to forward me that calculator?  Thank you.

[Patrick M.]

I have apartment units in a hot market because of its NYC commuter friendly local. I install quality where it matters - central air, stainless steel appliances, granite countertops, quality cabinetry and fixtures, parking and outside leisure area. And I don't waste money on things that don't matter- hardwood floors, Nest type thermostats, wifi, etc. This allows me to price my units just below the "professional" organizations who are developing in the area. Their costs are considerably higher but they drive the rents of comparables up and many young professionals will forgo the shared yoga studio or indoor dog park for my somewhat less expensive, but comparable, alternative.

These are old buildings- so more goes into it than just a standard renovation... they are stripped down, windows replaced, fully insulated, newly wired... The "professional" organizations, God bless them, have provided me not only the incentive, but the very real monetary return for going all in.

[Michael Green]

Originally posted by @Mike H.:

Here's a quick checklist that I try to follow when I rehab my rentals. I see that other people have put some of the reasoning behind their rehab effort but I thought it would be good to have some responses at the detail level as well:

1) No gold in the light fixtures. Even if its perfect, gold is all replaced.
2) Replace all the electric outlet devices unless they look mostly new (and always replace all the lightswitch/outlet plates). New devices and covers along with a paint job go along way in making the house seem like new construction. Don't ask me why. But it just seems to work that way.
3) New appliances - black
4) When flooring is needed: Medium grade frieze for carpet in living areas, ceramic in kitchens and bathrooms although sometimes I do laminate in kitchen depending on the height/surface in connecting rooms.
5) Replace countertops if dated or damaged.
6) Paint all walls - but only paint ceiling if really bad.
7) Certifiy HVAC
8) Replace kitchen faucet but not bathroom unless really bad.
9) An upgraded ceiling fan in living room and master bedroom.

Thats typically my list and then I do what most of the others have mentioned above. What is my return if I want to do more? Will it help me get more tenants if I do something else? How am I doing on my budget? How much is the rental? (big difference in whether I will budge on an upgrade if the rent is 1,400 vs 1,100).

There are some rehabs where I end up doing more because I have extra money left in my budget (i.e. I had no surprises) so I don't mind spending that to upgrade the living room from carpet to laminate. Or to put in a new bathroom vanity where the existing one was still functional.

Hello Mike, Why black appliances?

[Dennis M.]

All a tenant needs is four walls and warm place to crap . Most of my tenants just lay a mattress on the floor to sleep and they do stupid stuff like wash their clothes in the bath tub instead of the local laundry mat so there’s really no point in offering amenities or wasting profits on nice finishes  to my clientele. I could make it nice but sadly they wouldn’t appreciate it and I’d want more rent to do that which they really would not appreciate! 

[Mike H.]

@Michael Green
Black as opposed to white appliances. White appliances just look old and dated and "cheap".   And I have actually updated this in the past year or so. I am now doing stainless steel appliances for all my rentals.  For an extra couple hundred bucks, tenants just seem to feel as if the home is upgraded when they see stainless steel.

Also, I changed my flooring option completely as well. No more carpet anywhere. Its all vinyl plank thats at least 5.5 mm thick.  Its definitely more expensive but the stuff is close to bullet proof.  The carpet is a better return for sure. But what happens is every once in a while you get a tenant that trashes all the carpet and now you have to deal with replacing it all.

Its so much easier having the thicker vinyl plank so that you no longer have to deal with those kinds of turnover costs and effort. Almost everything mops up or can be scraped if they get gum or some other sticky stuff on the floor.  I'm buying flooring from home depot at larger quantities and then requesting their price discount.  The stuff going for $3 a square foot can be had for $2.40 with the discounts.  Gotta ask the pro services desk.

Lastly, I no longer install ceiling fans anywhere in the houses. Too many get damaged by the types of tenants that stiff you on the rent so it seems like I can rarely get reimbursed for them.  Large 15 inch flush lights provide plenty of light and even if they break the globe, I can get a new one and install that myself so my turnover is simplified.

[Kiera Underwood]

@Brandon Turner in OKC it doesn't make sense to do big upgrades. Sure you can and you can raise rents, but generally, as long as structure, safety and mechanical is addressed and there's just a light refresh done each time a tenant moves out.. you can cash flow just fine at what's appropriate for the market! 

[Michael Green]

Mike, great changes and I feel I will add these suggestions to my units as well!

Thanks for your time...

[Austin Soros]

I improve my rentals significantly. Happy tenants are longer term tenants that pay better.