High-end Renovations on BRRRR

6 Replies

Hey fellow BP members,

I've seen a lot of posts from buy-and-hold investors who talk about not doing high end finishes on a rental property. Though I am newer, this strategy is flawed in my eyes for several reasons:

-If you are hiring out contractors to do the work (which is generally the case), the cost is no greater when installing an expensive granite countertop versus a cheaper marble material

-The appraised ARV will be lower with lower-end finishes

-Your time return on investment is lower, because you still have the same scope of work (generally) for a lower profit

-Your exit strategy will be more difficult on lower-end finishes if you ever choose to sell in the future

These are probably obvious to anyone who argues not to go with high end finishes on rentals, so I really don't see the counterargument. My argument is that if you can do higher end finishes on a rental, why not? Not only will it commandeer a higher rent, but also rent quicker, which is an important and often overlooked metric. Maybe you can leave smaller details out, but planning a higher end rehab seems to be much more sensible in many cases. Obviously you need to be weary of the top-end rent that you could receive on a property in a particular market, but in most cities I feel that it is worth spending more on higher end finishes to really aim for that top-end ARV. Would like to hear other investors input on this topic.

David Greene I think would agree with you to a point. This is market and sub-market dependent, but your arguments are valid generally speaking. You want to install quality, not necessarily "high-end" and not low-end either, but the right materials for the market in which you're operating to achieve both a premium in rent and rentability. A contractor typically will charge you similarly to install granite vs. laminate countertops, but will charge more to install tile vs. a tub surround. If you're comparing tile to tile - then yes, the labor is the same and often cheaper if you use higher quality tile because the breakage and additional labor won't be present.

@Shawn Bhatti

On my BRRRR projects I improve them flip ready. I don't use granite, but I custom build our counter tops, they look like granite. New kitchens, new baths, hardwoods instead of carpeting, etc. The result is a higher ARV, higher rents and better quality tenants. Don't over improve, but make good choices to improve the value.

@Shawn Bhatti great post! @Joseph Firmin hit the nail on the head. It's market dependent and depends on what you're specifically upgrading. 

I believe if you are clear on what the goal is for the property, then the decision becomes a little easier. For example, if you're in a high end market trying to get high end rental prices, then marble tile becomes the clear choice over ceramic. But if the goal is to just build a durable rental and you're in a B class neighborhood, then the choice to put marble doesn't make as much sense. If it won't command a higher rent and has the same chance of cracking as other tiles, then what's the point?

In general, it's always better to make your property the best you can. Just treat each line item as an investment and make sure it makes sense for you and the goal of the property.

Best of luck.

@Shawn Bhatti there is some truth to this, but you seem to only be concerned with the cost of labor, when the finishes can easily be 50-70% of the overall budget. What really sells, both at true sale, appraisal, or lease up is good design. If you can find laminate counters that looks as nice as marble, you will get a better ROI across the board. If you are in a high end market, as mentioned, you need comparable materials.

The other side too is on a buy-and-hold you have to consider replacement cost as well.  Not that you are suggesting marble, but a renter will DESTROY marble in the first month.  At each turn you will be spending thousands replacing it.  

But things like tile surround versus vinyl, I whole-heartedly agree.  I intentionally put tile up in showers, since tenants destroy vinyl, so even though it is a cheaper, if I own the property for 10 years, I can tile once or replace the vinyl surround 5 times.

@Evan Polaski nailed it. It’s more about using durable materials...it should be in line with what the rental Market demands, and in line with the materials used in most comparable sales.

Granite vs laminate, and tile Shower vs vinyl surround are the 2 biggest things that appraisers look at as far as quality of finishes in my experience. Cheap subway vs $10 tile makes absolutely no difference. Builder grade granite (usually 3 flavors) vs higher end granite makes no difference. You can be cost effective and still Have a quality product in the end.

I usually just go with laminate countertops, but

I recently put granite in a couple rentals where the ARV justified it, because somebody savvy told me it would rent faster and for more. Nope. It Still took the same amount of time to find a tenant, and was still Right at market rent.