House Hacking BRRRR: Where does it stop?

Question

My wife and I are starting out our real estate investing journey by getting our current house ready to rent. We have a small 2 bedroom, 1 bath house with a nice yard in a great little town. The house hasn't been renovated since 1976, and was built in 1953. Our goal is to do most of the work on our house ourselves and get the house ready to rent by December 2020. Here is all the work we want to do on the house:

Interior:

Flooring - currently has cheap carpet throughout and wood floors in the kitchen.  We want to tear out the carpet and wood, and do laminate wood flooring throughout the entire house and tile in the kitchen and in front of the fireplace. (~$2.5k)

Walls - new paint on all walls, ceiling, and trim (~$250)

Fixtures - replace old ceiling fans (3), bathroom light fixture, hallway light, and kitchen lights (2) (~ $350)

Fireplace - current fireplace wall is outdated, update to an accent wall and give the house a unique bit of character (~$500)

Kitchen remodel - update cabinets and countertop, add backsplash and minor floor plan changes (~$9k)

Appliances - add electric water heater and new fridge (~$1500)

Misc - new blinds on windows and minor closet changes to make better use of space (~$500)

Exterior:

Fence - Part of fencing is old and falling down, 162 linear feet needs to be replaced, as well as a gate on one side of the house. Cost unknown

Concrete - currently has a gravel driveway measuring 12 feet wide and 45 feet long. I would like to put down fresh gravel at a minimum and ideally new concrete. Additionally, I'd like to add a small concrete patio about 12' x 12'. Cost unknown

Landscape - while I would like to update the landscape, it doesn't make sense to put a lot of effort into this. I will add seed and fertilizer this spring and have a professional prune trees and bushes to increase the curb appeal. Cost unknown

Paint - my wife does not like the color of the house, and wants to repaint. No issues with the current paint however, so I'm not sure it makes sense to put a lot of effort into this area as well. Cost unknown

Labor: most of the labor will be done by myself and family (my wife's dad is a carpenter). We will hire an electrician for wiring the new fixtures and outlet installation (~$100/hr)

The goal for our renovations is to increase the amount we can rent for (close to $1700/mo after rehab), to stand out as a cleaner and newer house than the renting competition, and to force appreciation in order to get a better heloc for future investment projects.

Please let us know what you think! Are we focussing too much on one area, or is there something that we definitely need to be investing in to increase the value of our property? Is there something that we missed all together? And do you have any recommendations for contractors or electricians in the Tacoma Washington area?

We appreciate all the feedback in advance!

Maxwell Emerson · Answer

@Kyle Groseclose thanks for the input! For the tile vs laminate, I was considering doing tile in the kitchen so that we can redo the floors in the rest of the house separately from skiing the kitchen rehab, to make it less of an undertaking all at once. We'll look into continuing the laminate into the kitchen as well.

The kitchen remodel will be huge, the current layout is pretty bad and thanks to my step dad we'll be getting a great deal on cabinets and countertops with a much more efficient layout, and of course a more modern look. We're thinking simple white cabinets up to the ceiling, a subway tile backsplash, and extending a section of countertops for more cooking space.

The bathroom looks recently updated, we've already painted and the only other change we'll do is add in a small pre-made vanity in place of the pedestal sink.

I'd love to update the yard, but this isn't our dream home so I don't want to get sucked in to making it perfect just to have a few dogs destroy it later down the road.

Thanks again for your input!

Hans Christopher Struzyna · Answer

I think these are all great ideas. The main thing you need to do is find comps in the area and model off of them. I just bought a property in Tacoma with a small 2/1 and a large 3/2 on it. This is the logic I'm using to approach mine:

Use https://www.rentometer.com or www.Zillow.com and figure out what your rent cieling is and either tour them or use the photos to determine the level of finishes. 2/1s can only rent for so much and often have higher turnover as the floor plans become too small for people faster than 2/2s or 3/2s do. So remember you could experience more vacancy and/or wear and tear than a larger home so keep that in mind when looking at finishes.

The two areas I would challenge you to really get clear on are the kitchen and driveway. I find that often times you can just paint (and sometimes have to sand) the cabinets, add new pulls and hinges and they completely transform. Look into that vs spending 9k on new ones. Unless they are totally falling apart in which case, replacement is a good idea. Unless the comps suggest you need a super sexy kitchen, I wouldn't spend money there. Same thing with the driveway. Look at the comps. For a rental of this size, don't expect people to pay for or want high-end amenities like a patio, paved driveway, brand new cabinets, etc.

All that being said, if you are going to do this for you and enjoy it while you live there, that is another conversation. Just don't expect to see a huge ROI on it.

I hope this helps.

Kyle Groseclose · Answer

Woops! Forgot to comment on the paint. Coming from a place of "I will never rent something I would not live in myself" I definitely understand her desire to paint. This is one area I would ask for compromise however. Her tastes may not equal that of your tenants. If the paint scheme would generally be considered acceptable I would say save the $ and keep it. The odds are just as good that you could repaint to her tastes and potential tenants will hate it. Now if the current paint scheme is something like neon-green and pink to look like a watermelon, maybe change it to something a little more generic. :)

Kyle Groseclose · Answer

Congratulations on starting your journey!!The recommendation is essentially to always, within the realm of reason and within your boundaries of personal taste, to make your rental "renter proof".

Tile - I personally prefer the idea of using a good looking laminate throughout. Much cheaper overall, looks great, and is all around better for a rental scenario in my opinion. Fireplace - Will this be usable? Gas or fire? Keep in mind renters may not be as careful with it as you would be as the owner. If it is wood burning I would personally seal it off as an accent only. Gas is safe enough.Landscaping - Don't underestimate the landscaping! If your goal is to stand out from the competition; the landscaping is your first impression. There quite a few good looking low maintenance landscaping options. Definitely avoid anything that would require frequent maintenance or re-planting.All in all I think you have a sound plan. The biggest $ return renovations for sales are typically kitchen/bath. These will definitely increase your rent value/appeal but be careful not to go overboard. I would recommend quarts as it looks good and is durable. You don't want renters damaging your brand new granite counter tops! That said, if you are looking for rental value: look at the possibility of altering the floor plan. Do you have room anywhere for a second or half bath? Another bedroom? Does it have a basement or loft that could be converted into a bedroom? Bed/bath additions can have a fantastic ROI for rental income.

House Hacking BRRRR: Where does it stop?

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