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Updated almost 8 years ago on . Most recent reply

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Tony Matthews
  • Investor
  • Houston, TX
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How much should I rehab in a C neighborhood?

Tony Matthews
  • Investor
  • Houston, TX
Posted

Hi everybody!

(Question is at the bottom.. feel free to skip ahead.) :-)

I'm a first-time investor, and have tried to learn as much as I can before moving forward. It's amazing how many questions come up when you actually start to DO what you've been learning.

The neighborhood:

The neighborhood has 80%+ renters, but low crime. The best houses are "B", with the vast majority being in the C to C- range on the inside, and C+ to C on the outside. 

The property:

I've found a C- property (with new, bad paint job, new cheap carpet and flooring) in a C neighborhood in a college town. It's a 4 bedroom, with the secondary bedrooms all really small. (9x9)

The house needs some obvious work to make it a C+ home... some plumbing issues, getting the dryer hookup out of the middle of the living room, adding a dishwasher, etc. Do I stop there? The house has old windows, not all of which will stay open. The counters are dated. The walls have horrible Artex texture. The HVAC is ancient, but works well right now. 

I'm considering adding a closet in the second living area (9x11) to make a 4th small secondary bedroom, as our target market will probably be students on a budget. (I was there once... 5 BR means more people to split rent/utilities.)

The question: How much should I rehab?

Being in a C neighborhood, especially in a college town, I'm not sure how much value there is in bringing the house to a B. What do you think?

Thanks!

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Andrew Johnson
  • Real Estate Investor
  • Encinitas, CA
3,789
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Andrew Johnson
  • Real Estate Investor
  • Encinitas, CA
Replied

Tony Matthews This is a personal perspective: do what it takes to command $50/month more rent than neighboring properties. That's NOT because you want the extra $50 per month, it's because (hopefully) you get a slightly better quality of tenant. The amount of wear-and-tear that a "C" tenant will do to a property is different than a "B" tenant. You don't want to try and make it nice enough to attract an "A" tenant to a "C" area. What you don't want is a unit only good enough (because of a cheap rehab) to attract D+ tenants.

I also don't think there's a tenant grading rubric (maybe there is) so my grades are a little arbitrary but I figured I might as well stick with the A-F scale.

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