winter is coming .. renovate now or rent later?

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winter is coming .. renovate now or rent later?

Albert L.
Bay Area · Member since 2016 · 82 posts · 55 votes

Hey folks - I may be closing on a property soon in the westpark/jefferson area. 

I'm in a bit of a pickle deciding whether to ..

1 - vacate the currently occupied unit and take the next 1-2 months to do some minor upgrades (new roof, new exterior paint, new appliances, touch ups to bathroom/kitchen) then try re-renting it in the new year under a new property manager with higher rental prices (new: $750, old: $700). 

or..

2 - do renovations later after weather conditions improve and stick with the current tenants who the owner chose themselves. (i dont think they're using a PM) but rent for a bit lower ($700). The tenants are currently on a month to month lease. 

with option 1 -- upside: can finish renovating since it's a slow season anyways and potentially rent it out for higher rates and increase cash flow/returns. theres also potential to screen for better tenants and secure a longer term lease

downside: i'll have 2ish months of vacancy...

i think option 1 makes more sense but maybe there's another option / perspective i'm missing here. 

thoughts? 

thanks BP Community! 

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Bob CollettPro Member
Property Manager · Brecksville, OH · Member since 2014 · 486 posts · 464 votes
7y

@Albert L. I would recommend that you keep the existing tenants for now if they are paying the rent and not causing too much drama. The Cleveland real estate market begins to slow down from Halloween until Super Bowl Sunday.  Think about rentals... what kind of tenant wants to move between Thanksgiving and New Year's day.  Of course there are a few exceptions such as job transfers, or insurance claims... but most often people moving during the holidays are getting kicked out of their current place.  

Moreover... keep a paying tenant during the winter if only to keep the utilities on.  A burst pipe can cost 10s of thousands of dollars.  

Cleveland is a great place... but people do not stand in line for rentals here with 700 credit scores in the B minus to C type neighborhoods. Its a challenge to find a good tenant, especially in the winter.

As Victor said... make repairs that prevent additional damage to the property or are essential to safety... leaky roof, broken windows, storm windows, furnace filters, smoke alarm batteries, furnaces & hot water tanks well beyond their useful life, repair holes in foundation or walls to prevent easy critter egress, repair gas leaks, repair dripping faucets, etc.

Bob Collett, PM

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  • Sunny D.
    Pleasanton, CA · Member since 2015 · 246 posts · 115 votes
    7y
    Originally posted by @Albert L.:

    Hey folks - I may be closing on a property soon in the westpark/jefferson area. 

    I'm in a bit of a pickle deciding whether to ..

    1 - vacate the currently occupied unit and take the next 1-2 months to do some minor upgrades (new roof, new exterior paint, new appliances, touch ups to bathroom/kitchen) then try re-renting it in the new year under a new property manager with higher rental prices (new: $750, old: $700). 

    or..

    2 - do renovations later after weather conditions improve and stick with the current tenants who the owner chose themselves. (i dont think they're using a PM) but rent for a bit lower ($700). The tenants are currently on a month to month lease. 

    with option 1 -- upside: can finish renovating since it's a slow season anyways and potentially rent it out for higher rates and increase cash flow/returns. theres also potential to screen for better tenants and secure a longer term lease

    downside: i'll have 2ish months of vacancy...

    i think option 1 makes more sense but maybe there's another option / perspective i'm missing here. 

    thoughts? 

    thanks BP Community! 

     I wouldnt do spend 10k for extra 50$ of cashflow. Defer it till next turnover and try to increase rent at renewal.

    2Reply
  • Albert L.
    OP
    Bay Area · Member since 2016 · 82 posts · 55 votes
    7y

    @Sunny D. - thanks for the response. i guess my concern was around competition but if folks are willing to rent at 700 during this time of year WITHOUT any upgrades, i should assume it will only get better as the weather improves. 

    the inspection is happening next week so i should get a better idea on just how bad the roof is right now. that was my main concern. if it can hold up for 6-12 months then i can replace at the next turnover. 

    0Reply
  • Victor N.
    Investor · Wellington, KS · Member since 2016 · 256 posts · 188 votes
    7y
    Replacing the roof will not affect the rent. Replace it if it needs it to protect your investment. A roofing crew can replace it in a few days with the tenant in place. I wouldn't do the other improvements unless they would be paid for with increased rent in 18 months or less. Replacing appliances should be done if they no longer function or are so old that they can be expected to break down. Obviously, the tenant accepted them so they are probably fine. Again there is no need to vacate the unit to replace appliances. You could ask the tenant if they would like new appliances and if they would agree to pay $50 per month more rent to get them. Exterior paint may make it easier to rent but probably won't affect the level of rent very much in comparison to the cost. Exterior paint should be done when needed to protect your investment and can be done anytime, weather permitting, with tenants in place. The good news is your tenant is month to month and will probably expect a rent increase with new ownership. I would consider a $25 per month rent increase if you are actually below market now. Give notice a month or so after you close according to your state's laws and after you have a better chance to evaluate your tenant's performance. If it takes the kind of improvements you outlined to raise the rent $50 on a $700 unit, I question whether you are really below the market.
    1Reply
  • Bob CollettPro Member
    Property Manager · Brecksville, OH · Member since 2014 · 486 posts · 464 votes
    7y

    @Albert L. I would recommend that you keep the existing tenants for now if they are paying the rent and not causing too much drama. The Cleveland real estate market begins to slow down from Halloween until Super Bowl Sunday.  Think about rentals... what kind of tenant wants to move between Thanksgiving and New Year's day.  Of course there are a few exceptions such as job transfers, or insurance claims... but most often people moving during the holidays are getting kicked out of their current place.  

    Moreover... keep a paying tenant during the winter if only to keep the utilities on.  A burst pipe can cost 10s of thousands of dollars.  

    Cleveland is a great place... but people do not stand in line for rentals here with 700 credit scores in the B minus to C type neighborhoods. Its a challenge to find a good tenant, especially in the winter.

    As Victor said... make repairs that prevent additional damage to the property or are essential to safety... leaky roof, broken windows, storm windows, furnace filters, smoke alarm batteries, furnaces & hot water tanks well beyond their useful life, repair holes in foundation or walls to prevent easy critter egress, repair gas leaks, repair dripping faucets, etc.

    Bob Collett, PM

    4Reply
  • Ronald Starusnak
    Property Manager · Syracuse, NY · Member since 2016 · 601 posts · 384 votes
    7y

    Can you or are you willing to take the hit in cash flow now? People say it's harder to rent in winter and it is, but there are still a lot of people that relocate in the colder months. It's just whether or not you want to take the cash flow loss now or later. I don't think you'll have a problem filling over the winter. 

    1Reply
  • Albert L.
    OP
    Bay Area · Member since 2016 · 82 posts · 55 votes
    7y

    @Victor N. - these are great points, thank you for writing. i guess i was under wrong assumptions that there'd be some safety issue if i'm replacing the roof with tenants occupied. given its black friday i think i got a little too excited about replacing appliances but good points, if it ain't broke why replace it.. thank you for your advice! 

    @Bob Collett - appreciate the perspectives on cleveland cycles. it sounds like with the repairs i can for the most part i can do with tenants there. thankfully the tanks, furnances and a/c are all in decent enough condition so we should be good there for the winter! :)

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