Full rehab, or patch it up and rent it?

Question

I always struggle with this.. I can get the same rent whether I do a full rehab and spend $20k, or just band aid my units (paint, fix anything broken, etc) for $500-2,000. About to close on my next one and trying to decide which one I’m going to do..

Maybe it’s bc we have a housing shortage here so anything gets rented even if it’s dated (also dated properties are the norm here, it’s rare to find a fully renovated rental)

One reason to rehab is that I’ll get more cash out if I refi afterwards.. another is that I should have less maintenance calls.. and the other is that I will attract the best quality tenants.

Ok that’s all for now; guess I didn’t have a question, just needed to remind myself why I should spend the 20k haha!

Greg Gaudet · Answer

I really like your comment Scott.. That's something I don't consciously think about as much as the others, but I do have a couple units that I just did a band aid rehab on, and I do feel some guilt over those units... I am not particularly proud of those.. Not like I would be if I had done full reno and made em shine.

On the other hand, those two units that are the most original are the greatest tenants I have.. they both are constantly thanking me for giving them a home and for being "the best landlord they've ever had"... I wonder if the condition of the unit has anything to do with that. Another important factor is that almost all of them are HUD. I've also found that my maintenance costs generally have been pretty low. So for me, I feel like it just comes down to getting a higher value to refi, adding value and equity to the property and my net worth, and providing a quality place to live, and changing people's perception of the "greedy landlord".

Just my thoughts and experience.

Ross Kalmbach · Answer

In my opinion you answered what you should do:

I have two properties in the same situation as you.  I go ahead and do a pretty good rehab (only thing I didn't do that I wanted was replace paneling with sheet-rock). Also, you would be surprised at a premium you might be able to get.  I went 100$ (>8% for this property) over market rent for one and it went within a week (would have went faster but we had to screen).

Good luck!

Theresa Harris · Answer

@Greg Gaudet  You answered your own question.  The only thing I would add is you can do the quicker reno if you don't have funds.

Scott Passman · Answer

@Greg Gaudet ROI is great and we all strive to make money.  But at the end of the day, I think most of us want to provide a quality place to live for tenants and if you can do so while still making a solid return and simultaneously creating less work for yourself down the road...that's a win all around.

Seth Borman · Answer

We've had better luck doing higher quality work to get higher quality tenants for more money.We've turned $600 apartments into $1000 apartments by replacing the flooring and kitchen and adding a mini split.

Full rehab, or patch it up and rent it?

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