Confessions of a Rehabber: Expert Tips for Profitable, Rentable Properties

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I have owned dozens of rentals over the years, and I have gone through many stages of what a rental house finish should look like. Believe me when I say I am glad I am no longer in there trying to paint an entire house by myself or fix the plumbing in the bathtub. It’s not that I have anything against people who do that in their rental properties; it’s that I’m not particularly good at it, and I don’t enjoy it.

As far as my rental rehabs, they definitely have evolved over the years. I used to ask what the cheapest thing I could do to get my properties rent ready was; now I ask what we need to do to make it totally RIGHT. Make it nice. Make it extraordinarily desirable. There is a big difference dealing with things like replacing plumbing, electrical outlets, light fixtures, even hot water heaters upfront (relatively small costs) versus doing these things when tenants are in the house (they’re a pain to deal with and more costly).

For the record, and since these kinds of properties help pay my bills — I love the debate over the 2% rule, and how a $30k house is or isn’t good for you, or a good investment, or whatever. The past two weeks, I have put up two houses for rent and I wanted to take some time to talk through the rehab, and then talk about actually renting the houses.

Related: Rehabbers Beware: 5 Big Issues Distressed Properties Hide (& How to Detect Them)

Oh, and this little thing: They both rented the first day I showed them, for more than I anticipated — at or over the 2% rule of rent-to-cost of the property.

One of the giant misunderstandings about the $30k house is that it’s in the ghetto. Not the case. If we are looking at a $30-$40k house to BUY, it’s another $7-10k plus to rehab, and it’s more like a $60-80k house when we are done. We end up with a great LTV if we roll the purchase and rehab into long term debt. We have a good value with the house that we now own that is totally redone inside, AND we have to make sure that we have made critical choices on what the houses looks like inside and out, and that people actually WANT to rent them.

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The Rehab

I’ve written on our rental rehabs a few times, so I don’t want to be too redundant, but I believe it is worth a synopsis. We go through and paint everything inside and out. Roofs that need to be replaced, are. The gutters are fixed or replaced. The outside gets cleaned up, and we add a little mulch and plantings if necessary to make its curb appeal pop.

The inside gets fresh paint on the walls, ceilings, and trim. The floors (if they are hardwood) get redone with a dark stain. We use the same color paint, the same color trim, and the same color floors. I’ve started to put the mixed stainless/black stove in the units as well, and I’ve happened to catch both of these stoves on sale, spending as much or less as its white counterpart costs.

The kitchens looks awesome, with new counters, sinks, faucets, etc. The plumbing gets updated. All the stuff inside that tenants might be calling you about sooner or later — that you DON’T want to deal with — we deal with it beforehand.

On the last house, we replaced many of the windows in the house with the vinyl replacement windows. If the windows in your home are stock sizes, you can get the basic vinyl window for $120-$150 per window, and most guys I’ve found can install them for around $40-50 a window. Our houses are around 800-1,000 sq ft and usually have around 10 windows. Is $2,000 for all new windows a good investment? You bet it is. Do new windows make a tenant excited? Absolutely. Is a new window that is efficient, easy to clean, easy to maintain, and hard to break exciting for me? Yes!

Pre-Listing Rentals

On one of the properties, I decided to try pre-listing it. I had it up about 2 weeks before it was ready. I took one front picture of the house, along with a few interior pictures of several of our previous ones, saying something to the effect of, “These are our finishings and color scheme. House coming soon.”

The house cost $28k, the rehab was just over $10k, and I asked $950 in rent.

The phone would not stop ringing. My email wouldn’t stop dinging with people wanting to get into this property. It was constant.

I loved that so many people wanted to rent the house, but I couldn’t get people into it — so that became a bit frustrating for me, as well as I imagine for the tenants.

By the time we finally had it ready to go, I called everyone back and set up back to back appointments over a period of 3-4 hours. I had about 5 or 6 showings that day, and the first people who walked into the house put in their application (I had spoken with them during the pre-listing time), and they put their deposit down that next day.

Not Pre-Listing Rentals

The next one I did, I decided not to pre-list, and I didn’t even put a sign in the yard. I put it up online on a Saturday afternoon around 2 p.m. By Sunday evening I had approximately 20 emails and another 5-10 phone calls. I again scheduled the showings back to back to back to back.

The first person who showed up was nice, walked through the house, asked where they could apply. I handed her the application, and she filled it out. About that time the next couple walked in. I asked the first person if she was interested, and to make sure she got the house, she would need to go and get me the deposit check. She said yes.

First person: Application, deposit, background check, etc. — and done.

Lesson

I kept hearing how nice our houses are. This goes a long way. The tenants sees a nice house. I don’t have to hear from them on my cellphone. We have also set a demand for our properties, as people see the kind of house they can have for the money we are asking.

Related: How to NOT Over-Improve Your Properties: 3 Key Levels of Rehab Finish

The pre-listing strategy isn’t something I am going to do again. It wasn’t worth the hassle before I could get the interested people into the house. Absolutely putting people back to back is worth it. I’ve used the 3-5 open house kind of idea before, but I’ve found it’s much better to lock someone into a specific time so they feel like they are going to miss it since they scheduled a time with you.

I also let the people who are coming know that our houses have gone quickly in the past, and if they are interested, I will have the applications there (or they can fill one out online), and to bring the deposit check with them so they don’t miss out.

We love spending only one hour to get an awesome tenant. Use your advantages — whether it be location, style in rehab, or marketing skills online, and generate interest in your properties so people are coming to you to rent your properties. Tenants in your property faster equates to fewer holding costs, less time for something to happen to your vacant house, and more money in your pocket.

What are the best and worst things you have done in your rental business, and what is the number one thing you are doing now that is making your rental business run more smoothly, efficiently, and most profitably?

Leave your comments and suggestions below!

About Author

Nathan Brooks

Nathan Brooks is a dad, husband, worship leader, and real estate investor in the Kansas City market. Foodie. Coffee addict. Crossfit junkie.

14 Comments

  1. Page Huyette

    Thanks for sharing the comparison between pre-listing and not pre-listing. I recently listed a home for sale as an agent that was held off the MLS until the seller completely moved out. I thought that marketing it before it could be shown would provide exposure for the property and create a buzz, but in fact all it did was create extra work for me. The truly interested parties didn’t come from the marketing I did before it was active on MLS, and I don’t think I would approach it the same way again.

    The goal, whether it be to rent or sell a property is as you stated: get the best tenant/buyer in the shortest period of time. Simple as that!

  2. I’ve found that open houses make way more sense than setting appointments for anyone who I pre-screen. Too many no or late shows for my taste. I like having them all there between 2-4pm.

  3. Page Huyette

    I would agree with @LAMAC66 if it is an active rental market with low vacancy rates. Anyone worth renting to will show up for the open house, ready to apply. Others that don’t have their affairs in order, or are hoping to negotiate on terms, price, etc may also show up, but having them all there together makes it obvious who is the better tenant.

  4. Michael Hayworth

    I’ve done my last 3 rentals as open houses, advertised on Facebook and Zillow/Trulia, and love doing it that way. Walk away with multiple applicants and choose the best one, not just the first one.

    I’m a professional remodeler. We mainly do work for retail clients, but my crews remodel my own investment properties, and those of a few other investors as well. I definitely agree with the advice of having a standard set of options so you don’t need to make choices for each individual property. But I don’t see the point of replacing a perfectly OK stove that’s already in the house, and definitely don’t see a financial advantage to replacing windows. You get $0 extra in rent for it, and you’re not the one paying utilities. That’s several months you’re adding to the payback on the property for no gain.

    • Kyle Hipp

      I always have a plan to upgrade the windows on my properties as well. These are 80-120 year old houses so many have wooden single pane windows. Frames are rotten, most don’t stay up as the sash cords broke decades ago. Several are painted shut. They leak air and are horribly energy inefficient especially here in Wisconsin. New windows look great from the outside, protect the property from the elements. I always upgrade to low-e, with argon gas and a triple glaze. This increases the energy efficiency of the property. I might not pay utilities but I can get more rent if their utilities are lower. Plus they also create more comfort which makes life easier. Lastly it makes the HVAC systems not have to work nearly as hard thus extending their life, saving me money. For $280 per window, I get brand new windows with all the features and great quality (I have seen the cheap ones and they suck) professionally installed and exterior trim professional wrapped. Windows alone have saved 25%-30% in utility costs which is great as well.

  5. Matt morgan

    Great article! wondering how you’re getting houses so cheap if you’re not buying in the ghetto? I’m in a similar market in omaha, and find it extremely hard to find houses in that range that could demand $900 rent.

  6. Jerry W.

    When you find a bad chunk of cast iron plumbing, just replace it all. If one spot has rotted out there is a good chance you have other problem areas.. Just replace it and have to come back and chase it 2 or 3 times over the next 10 years.

  7. Bart H.

    Great article. I am a newbie looking to purchase my first investment property and I do not want to do any fix up work myself. I can find good deals all day but many require rehabbing, which has caused me to pass these properties up. I have got to partner up with a good rehabber in my area.

  8. Paula R.

    I enjoy reading all these blogs. One thing I’ve found, though, is that I don’t know a single person in three states that can do significantly better than 1% on the rental to cost ration; I do envy those who are in markets where they can demand 2% of the purchase price + rehab costs! But I am talking about Las Vegas, New Mexico and southern California.

    I would love some more input re replacing windows. I am working on the spreadsheet for a duplex vacation rental and considering whether to put new windows in, since we’ll be paying all the utilities. I live in a rural area and have figured $500 per window for labor and materials, just hoping that will cover the new double pane windows that Kyle Hipp mentioned. I find it easy to go over budget by upgrading TOO much for a rental unit, so do a detailed budget for everything I want to do; I find over a couple of weeks I keep adding and adding and then have to go back and decide on what’s highest priority for RIGHT NOW. I am doing this before even putting in an offer to make sure it pencils out for me and my investment partner.

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