Would You Pay More for a Rental If All the Expensive Stuff Was Already New?

Question

Say you’re looking at two pretty similar rentals. One is cheaper, but the roof, HVAC, and water heater are all getting old. The other costs $20K more, but all three were replaced recently. The cheaper one probably looks better when you first run the numbers, but I’d have a hard time ignoring those future repairs. If the rents and neighborhoods were about the same, which one would you rather own? Do you actually pay more for a property with newer major systems?

Shiloh Lundahl · Answer

@Ali Kalaei It's all about the numbers.

If I can buy a home for $100,000 that after I put 50k into the rehab it's now worth $220,000 then I would be inclined to buy it.

If I found a home that I can buy for $120,000 that has a new roof and plumbing that still needs 30k in work but then will be worth $220,000, then I would buy that one too.

So yes, I would pay more for a property that has already been partially renovated, as long as that renovation is good. But if buying a house that has already been partially renovated doesn't give me the equity capture that I want, then I won't buy it.

It's all about the numbers.

Hasan Gabareen · Answer

There are a lot of factors at play but as we all know, replacing a roof, heating system, as well as many other things are the biggest players of cost.

I like to model a $1300 or so vacancy / repair shock as well as a monthly Capex of 125 dollars when I look at a deal. A bad or damaged heating system or roof can be hard to recover from and so the 1300 dollars as well as the 125 is to essentially act as mini issurance.

Me personally, if the roof and all of those high expense costs are taken care of, I'd probably lean to pursuing that property.

Bill B. · Answer

MAYBE. If the freshly updated capex property was priced half or less of what it would cost me to do it. Why 1/2?  Because there’s a pretty good chance the property with older equipment will make it another 5 years. So in 5 years you have 5 year old vs 20 year old equipment. Now how much extra would you pay? 20% of their cost? Nothing?

You certainly can’t pay all the cost or you’re not saving anything. Given that choice I’d rather have it day one new and done right.

Theresa Harris · Answer

There are other factors to consider-location, layout, etc.  Assuming the two were side by side, I'd figure out how much those maintenance issues would cost me and how well they were currently working and then decide.

Would You Pay More for a Rental If All the Expensive Stuff Was Already New?

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