Need advice: Recommended renovations for higher rents?

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Need advice: Recommended renovations for higher rents?

Michael Orlando
Investor · Cleveland, OH · Member since 2019 · 147 posts · 156 votes

Hello friends!

So I am considering putting an offer in on my first property (a duplex in the Cleveland, OH area) and have a little issue..

The area has very high taxes which tend to be over 6K a year. When I ran the numbers, it was hard to get this deal to make a lot of sense from a cashflow standpoint. However, if I can get it for a solid price and raise rents a bit, it would make sense. It's close to a couple of colleges, in great shape, super clean, just slightly dated. 

One unit is currently rented for 825 but I think the tenant is actually paying slightly under market rent for the area as she knew the owner who lived in the downstairs unit, but passed away. Market rent for this area and unit type seems to be around 875. I'd like to get 950 or 1000 per unit if possible. These are 2 bed, 1 bath units. 

There is older carpet through out, a pretty dated kitchen (but very clean), and dated, but clean bathrooms. I'm leaning towards doing some vinyl plank flooring through the units, kitchen cabinets and new tub and toilet. I guess I'm looking for advice and what tends to add the most value in tenants eyes and if I'm on the right track. If so, does anyone have recommended materials/brands for the renovations that they tend to use over and over for certain reasons?

Thanks!!

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Robert Matelski
Rental Property Investor · Austin, TX · Member since 2018 · 214 posts · 270 votes
7y

What is the assessed value relative to what you are paying for the property? If you do not know, you can check here: https://myplace.cuyahogacounty.us/

If the price you are expecting to pay is well below the current assessed value, you'll likely be able to successfully dispute the valuation (and get the taxes lowered accordingly). When I run numbers on a property that has an assessed value far higher than what I am paying for it, I do two sets of calcs... one is the cap rate as-is, and one is the cap rate based on a new (lower) tax valuation. Hope this helps.

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    7y

    If you are doing renos on a place that doesn't make sense from a cash flow perspective only to increase the rent $50 a month, it probably isn't worth it.  Some fresh paint, sure easy enough; but new flooring, kitchen and bathroom-that is going to cost a lot and isn't worth it to up the rent by $50 a month unless you are buying it under market value and will make the money back when you sell it.  Even then, I'd wait to do it as tenants can be hard on homes.

    Are there other units in the area renting for $950 or 1000 to justify increasing it that much?

    Also when looking at renos, factor in vacancy.  You won't be getting rent while the renos are going on and it may take time to rent.  Do the math and see if it is worth buying the house and renovating.

    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    7y
    Originally posted by @Michael Orlando:

    Hello friends!

    So I am considering putting an offer in on my first property (a duplex in the Cleveland, OH area) and have a little issue..

    The area has very high taxes which tend to be over 6K a year. When I ran the numbers, it was hard to get this deal to make a lot of sense from a cashflow standpoint. However, if I can get it for a solid price and raise rents a bit, it would make sense. It's close to a couple of colleges, in great shape, super clean, just slightly dated. 

    One unit is currently rented for 825 but I think the tenant is actually paying slightly under market rent for the area as she knew the owner who lived in the downstairs unit, but passed away. Market rent for this area and unit type seems to be around 875. I'd like to get 950 or 1000 per unit if possible. These are 2 bed, 1 bath units. 

    There is older carpet through out, a pretty dated kitchen (but very clean), and dated, but clean bathrooms. I'm leaning towards doing some vinyl plank flooring through the units, kitchen cabinets and new tub and toilet. I guess I'm looking for advice and what tends to add the most value in tenants eyes and if I'm on the right track. If so, does anyone have recommended materials/brands for the renovations that they tend to use over and over for certain reasons?

    Thanks!!

     Without a doubt it's the kitchens & baths. Nothing else comes close. New counters, modern decor that's what the tenants want to see.

    1Reply
  • Jared Lichtin
    Contractor · Cleveland, OH · Member since 2014 · 317 posts · 181 votes
    7y

    @Michael Orlando Where is it, Cleveland Heights? I have a 3 unit in cle heights thats 6300 a year but its fully updated. You're going to have to make sure that no matter where it is, that quality tenants would rent at the price you're looking to shoot for, and that it's on a solid street in a good area.

    0Reply
  • Federico Gutierrez
    Realtor · Cleveland, OH · Member since 2015 · 2k+ posts · 857 votes
    7y

    See if you can add a dishwasher in the Kitchen. That will help attract tenants. Might not get you higher prices but helps it stand out

    1Reply
  • Robert Matelski
    Rental Property Investor · Austin, TX · Member since 2018 · 214 posts · 270 votes
    7y

    What is the assessed value relative to what you are paying for the property? If you do not know, you can check here: https://myplace.cuyahogacounty.us/

    If the price you are expecting to pay is well below the current assessed value, you'll likely be able to successfully dispute the valuation (and get the taxes lowered accordingly). When I run numbers on a property that has an assessed value far higher than what I am paying for it, I do two sets of calcs... one is the cap rate as-is, and one is the cap rate based on a new (lower) tax valuation. Hope this helps.

    1Reply
  • Michael Orlando
    OP
    Investor · Cleveland, OH · Member since 2019 · 147 posts · 156 votes
    7y
    Originally posted by @Theresa Harris:

    If you are doing renos on a place that doesn't make sense from a cash flow perspective only to increase the rent $50 a month, it probably isn't worth it.  Some fresh paint, sure easy enough; but new flooring, kitchen and bathroom-that is going to cost a lot and isn't worth it to up the rent by $50 a month unless you are buying it under market value and will make the money back when you sell it.  Even then, I'd wait to do it as tenants can be hard on homes.

    Are there other units in the area renting for $950 or 1000 to justify increasing it that much?

    Also when looking at renos, factor in vacancy.  You won't be getting rent while the renos are going on and it may take time to rent.  Do the math and see if it is worth buying the house and renovating.

    0Reply
  • Michael Orlando
    OP
    Investor · Cleveland, OH · Member since 2019 · 147 posts · 156 votes
    7y

    Yeah there definitely are some renting for as high as 950-1000 so I do think it'd be justified. They're just a bit more updated. When I do the math with higher rents (and getting the house below asking price) it does cashflow even being conservative on budgeting for maintenance etc.. I guess it would come down to how much the updates cost, but again everything is in great shape, just cosmetic updates would be the focus

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  • Michael Orlando
    OP
    Investor · Cleveland, OH · Member since 2019 · 147 posts · 156 votes
    7y

    @Robert Matelski That does help alot! Definitely a good thought.. is that process relatively painless? 

    Definitely planned on making an offer well below asking as I think they're asking too much. Either way, I plan on paying well below asking. 

    0Reply
  • Michael Orlando
    OP
    Investor · Cleveland, OH · Member since 2019 · 147 posts · 156 votes
    7y

    @Jared Lichtin Yep it is actually! What are the units in your property?

    Street and area are both great so I'm happy there. How has owning in Cleveland Heights been overall for you?

    0Reply
  • Michael Orlando
    OP
    Investor · Cleveland, OH · Member since 2019 · 147 posts · 156 votes
    7y

    @James Wise Thanks James! Definitely areas I would focus on.

    1Reply
  • Robert Matelski
    Rental Property Investor · Austin, TX · Member since 2018 · 214 posts · 270 votes
    7y
    Originally posted by @Michael Orlando:

    @Robert Matelski That does help alot! Definitely a good thought.. is that process relatively painless? 

    Definitely planned on making an offer well below asking as I think they're asking too much. Either way, I plan on paying well below asking. 

    "Painless" is somewhat subjective I suppose... but it's something you can do from the comfort of your own laptop with an internet connection. You will typically (but not always) get a formal hearing, but you don't have to physically go as long as you have your ducks in a row (i.e. have compelling evidence provided to them in advance making your case for the valuation dispute). I have never physically attended a hearing and I have gotten the values reduced more than half of the time. And in the cases where I was not successful... I tried again (not via the formal appeal process, but by waiting until the next year to do it again), with more/different evidence. I just had this happen with a Garfield Heights SFR actually... and again, it was done 100% sitting at my dining room table in front of my laptop :)

    1Reply
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