TO UPGRADE A RENTAL PROPERTY OR NOT?

Question

I have a rental property in Montreal that I purchased a year ago as a foreclosure. Upon purchase, tenants already resided in it & we signed a lease for a year. When they were approaching the end of their lease (last month), they gave me notice that they would be terminating it as they couldn't afford it anymore.

I purchased the property for 160K which is a lot lower than market value. In the condition that it was in, it would have sold for 220K.

Instead of doing the bare minimum to the property, I decided to do a lot of upgrades to the property so that I could then raise the rent & also attract a certain type of tenant. I spend 20K & now the house is gorgeous & it now rents for 300$ more than what I was previously renting it for.

Seeing that this is my first rental property makeover, I have a hard time drawing the line as to what I should renovate & what I should keep as is. Even though it's not my main residence, I tend to go all out as if it were. (Maybe that's not a bad thing)

Can you please give me some insight as to what you would have done in this situation & what the pros and cons are.

Thanks soooo much!

Lisa

(I was able to finish renovations in 3 weeks & found new tenants who love the house)

Jarred Sleeth · Answer

We generally try to make sure we are getting our units to a nice condition without going overboard. We don't use top end appliances but shop for newer lightly used appliances in good condition to save money. If the neighborhood calls for it, we try to upgrade bathrooms and kitchens but we don't buy top quality materials. The trick is to get a good look that is durable but not the most expensive. Stuff will get damaged and broken in this business and there's no reason to outfit everything with the same level of materials you would use in a flip.

Colleen F. · Answer

The difference  I think you need to pay attention for rentals relates to paying extra for style.  Yes, you can renovate to finishes you would like to live with but don't pay extra for the detail style in mid range rentals. If the 2/sq foot tile will do and give you a decent look don't go for the $10./ sq ft you would put in your own house.  Try to remember that you aren't living there so the taste should be neutral and the finishes durable.  Buy mid-range appliances not top of the line. Buy good  mechanicals and energy efficiency you will be living with them a long time and if it is pricey to run you  will surely hear about it. We spend extra to  buy things  that are solid but I continue to remind myself it is a rental so the focus is on a good but durable look.

Lisa Lavie · Answer

@Roy N. Hey Roy, We think along the same lines. I also make that that I would be willing to live there before I could ask someone else to do the same. I'm still relatively new to I may slightly change my view is I see down the line that all of the tenants are trashing the place regardless of how beautiful I make the house  lol.. but for now I love the feeling of knowing that all of my properties look perfect! :) Thanks for your feedback

Lisa Lavie · Answer

@Christine O'Meara Thanks so much. I appreciate your insight :)) The property is a SF home. The tenants seem great so far & they're planning for staying 3 to 5 years. Who knows maybe even more seeing that the house looks gorgeous now :)

Roy N. · Answer

@Lisa  Perez

We are frequently criticized for spending too much on our renovations - energy efficiency is core to our operating beliefs, so we frequently spend a little more time improving "out-of-sight" things (air sealing, insulation, LED lighting, ventilation, etc.) then many of our competitors.

Similar to the sentiment you expressed, I am also a firm believer that our properties should be in a condition where I would be willing to live there with my family before I could ask someone else to do the same.  That does not mean we use upscale finishes in our student houses, but they are more energy efficient than other houses, healthy, clean and in good repair.  I'm also a strong believer that if your provide the tenants with a property demonstrating good care, they will be more apt to maintain it in good condition.

So, while our return on investment may take a little longer than some of our neighbours, we are fully rented save for one unit which just came available (after three years) despite the fact vacancy in our are has risen from ~3.4% to ~8% in the past three years.  Looking up and down the street where our student rentals are located, some of our competition are not so fortunate - the students now have choices and are choosing not to live with the slumlords.

Christine O'Meara · Answer

Hello Lisa,

Nice job with your property!

Is this a single family rental or a multi unit?

Perhaps in SFR's it's OK to put a little more on renos in order to attract better quality tenants,and from what I hear on BP, these tenants seem to take better care of the property.

I used to go nuts on my rentals also using expensive upgrades.(multi-family)

I've now learned that tenants are tenants!

No matter what is done to the unit , it will get used up and I have to start all over when they leave...

So now, a nice paint job throughout; bathrooms and kitchen sinks function well;flooring is usually wooden and shiny;and a cute little welcome basket and VOILA!

No more expensive stuff! I'm here to make cash!

Hope thus is information is useful.

Good luck ,and see you around!