How much do you spend to improve a property?

Question

I Just got a lease signed on my first rental property.   I am a bit obsessive, and may be guilty of spending too many resources improving the property.   I wanted everything perfect.

Others told me I was over improving. I was mostly basing my decision on the information in Property Management Kit For Dummies and Building Wealth One House At A Time.

These 2 books both endorse a philosophy of "make the place really nice to attract the best tennant".

In my minute experience, I spent a ton of work improving the property and a passerby out of the blue inquired as to whether the house would be for rent soon.

This individual thought the house would be perfect for his family and was excited by the opportunity.

He was qualified, signed the lease and moved in, allowing me to turn the property in 7 calander days!

So, in my singular experience, "over inproving" the property prevented even needing to advertise and show the propert to applicants.  This probably saved me 1/2-1 full month of vacancy.  The savings from having the property turn quickly far outweigh the extra resources used.  I don't expect this to happen every time however!

It is hard for me to understand where to stop when fixing up a place.

What are everybody's thoughts and experiences on this?

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Drew Sygit · Answer

@Andrew Chase write this down and don't EVER forget it:

Maintain to the Neighborhood!

What does that mean?

Everything is relative to the location. - What's expected in one area may or may not be expected in another.

Swimming pools are almost a necessity in Class A properties in Phoenix, but what about in Class D properties there? Or Class A properties in Montanta?

MANY newbies make the mistake of prepping their rentals like they're going to live in them - instead of "Maintaining to the Neighborhood".

One of two things will happen if you don't follow this guideline:

Over-Improvement: yes, you often get a tenant faster, but there is a limit to how much you can spend on improvements and get enough higher rental income to get a return on your investment (ROI).
- At a bare minimum, you want higher rents to cover your funds spent BEFORE you have to spend more money fixing those exact same things again.

Under-Improvement: you risk becoming a slumlord and only attracting slumtenants:(- You don't want to do this on Class A and B properties. - You have to walk a fine line with Class C and D properties.

Easiest way to monitor or learn how to Maintain to the Neighborhood your property is in - check out interior pics of the rental competition on Zillow.

FYI: in our experience you can usually justify 5-10% over-improvements with less vacancy time and corresponding lost rents. Beyond that, you really have to analyze your ROI over the expected timeline to recover the funds spent via the higher rents.

JD Martin · Answer

It depends on your market, your asset and your target market. If you want to market low cost houses to Class C tenants, you don't want to waste money on granite countertops and Viking appliances.

Your property should be similar or slightly better than similar properties in your market catering to similar clientele. If you're not sure where to spend money, I have never gone wrong focusing on things that will cause you neverending aggravation - old roofs, ancient heating systems, etc - and items that modern renters don't want to live without - dishwasher additions, central heat & air, etc. My experience is that renters don't care about fancy windows or countertops or appliances. They appreciate storage space, amenities common to homeowners, low utility bills, and proximity to work and shopping and schools.

Peter Mckernan · Answer

I really look at this at what is the basics verse the luxuries! The luxury items are brand new counter tops that are really nice, new shaker cabinets instead of painting the cabinets, recessed lighting verse one single ceiling fan and the list goes on... I say this all while I put recessed lighting in a couple of my new rentals, but this was due to the fact the places are built in the 50s and have not been updated since the 80s. I wanted to get the stuff updated so that it can run for another 25++ years.. For one of the SFRs on the lot we painted the cabinets that have been there since the 80s, and on the other one we could not keep the cabinet, kitchen layout and all due to it being built so long ago and never really being fully updated.. On this last one I mentioned we are also not doing the full nicest new shaker cabinets, we are getting them for 2200.00 with install of 800.00 verse other companies being at $5,000 for all this stuff.

You need to take it into consideration of what to do and what not to go overboard on each and every deal. As Drew put it maintain the neighborhood.

Ned Carey · Answer

Know your market. That means looking at dozens or even hundreds of deals so you know the market inside and out - literally. You need to know the expectations of the renters and buyers.

Just another way of saying what @Drew Sygit said.

Jason Milko · Answer

I love Drew's comment above.

When we bought our first property, I had a similar urge to fix everything and make it perfect. After some thinking, I adopted the mindset of "if the tenant doesn't care, why should I?" We were fortunate to already have satisfied tenants at the time of purchase, but this mindset saved us some money and a lot of stress.

Austin Jones · Answer

Hey Mr. Andrew, generally speaking, the best approach to renovating a rental property is to match, or slightly exceed, the quality of comparable properties in the area. For example, when estimating potential rent, review what similar properties nearby have leased for. When renovating, it makes sense to bring your property up to that same standard, since tenants are already willing to pay the rent set by other landlords for properties at that level.

Caleb Brown · Answer

I always say base it on comps. You want the exterior to be appealing and welcoming. That sets the tone for renters, buyers and the appraiser. The inside can vary. Kitchen and bathroom is where you want to put your focus. Well done on doing it right and getting a tenant in there!

How much do you spend to improve a property?

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