Where should I start my renovations on my first property?

Question

Hey all!

My wife and I just bought our first investment property. Yay! Its a 3-2 to which I am hoping to add one additional bedroom and an ADU in the garage. We just closed and I am starting the process of planning our renovations and additions and I'm finding myself unsure of where to start first. We have limited capital, about 30k all-in, to use for renovations.

However, here's my dilemma. The kitchen is...well lets say "outdated" to be kind. The oven is more than a decade old and the kitchen design is unsightly. I want to start adding rooms and dwelling units so that I can maximize my rent-by-the-room revenue (we don't cash flow until all 4 rooms are rented); however, I'm worried that the kitchen will be an eye sore such that I won't be able to fill those rooms with my desired tenant (working, clean, respectful, professional adult).

I'm sure the answer is a, "well it depends on X", so I'll provide as much information as possible below in case there's anyone willing to give me a detailed answer, but I'm wondering if the kitchen is worth spending money on to renovate BEFORE I begin adding rooms and dwelling units. Remember, capital is limited so depending on the cost of the kitchen it would push out the rooms and garage quite a while. Same goes for the kitchen if I choose to start on the rooms first.

To sum it all up: I'm asking if anyone with experience has found that it's better to add rooms first to a property or update and improve the current layout to help attract renters.

Thank you in advance!!!

Details:

Rent per room: $600-750

Monthly Cash Flow (respectively) at 2 rooms, 3, 4, 4 rooms + ADU: -$933, -$303, $326, $1,166 (we don't cash flow until we have all 4 rooms rented and are living in the garage)

Immediately Available Capital: $30,000, if needed I also have access to nearly 28k in credit, however that would put me at almost 100% credit utilization and I really...really don't want to do that :)

FOLLOW UP QUESTION: I've also wondered if this 30k would be better used as a down payment for a second investment property instead of on renovations for the current property given it is livable as-is (just doesn't cash flow). THANK YOU!!!

Alex Ramirez · Answer

I will say this:

#1 Priority. Add another room. Why? Because your house will now compare to houses being sold with one more room. This by far will add more equity than anything else

#2 remodel the kitchen. Kitchen is the second most important thing in a house people look at

#3 remodel Bathrooms.

I recently turned a 2b1b to a 4b2b and I added a lot of equity to it. In fact, the ARV was so much higher that at closing the title company had to pay me back instead of me Bringing money to the closing table.

Let me know if you need some help.

Parker Hardy · Answer

Yes I'm hoping to find tenants that are working professionals that would be working during the day and home evenings and weekends.

Dwayne Poster · Answer

Do you have a specific tenant profile that you will serve? What are their likely needs?

Parker Hardy · Answer

Thank you for the advice Jay! I hadn't thought of only rehabbing part of the kitchen. I'll look into that for sure. The rooms are great, its just the kitchen so I think I'll make a few updates on the kitchen to the appliances and then focus on putting in new rooms. Thank you I appreciate your reply!

Jay Thomas · Answer

Hey Parker!

1st off, CONGRATS to you and your wife on your 1st investment property! That is HUGE!

As a realtor and investor, here is my opinion. You are correct, it does start with a "Well it depends...". It depends on exactly HOW liveable your current rooms are. If they are liveable and no safety worries are to be had, then I say go with the kitchen. Now, who says you have to do the ENTIRE kitchen? You say it is unsightly, well, maybe if you were to add a few upgrades here and there, it will flow or at least look like it can. With Rent being only $600-700/month, I do not expect full families of 5 living there, so as long as the appliances are up to date and it looks clean, I think you'll be ok for now. I definitely recommend keeping a little pit of pocket money to the side in case of maintenance issues.

With getting the 4 rooms at capacity, I recommend showing how great of a landlord you'll be. That sometimes sells a lot more than how places look! Showing safety precautions as well as items that you obviously thought through (Parking, garbage, etc) can be all the difference.

I hope I helped in some sort of way. Good luck to you, and let me know how everything goes! I would love to hear what you ended up doing!

Where should I start my renovations on my first property?

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