How much rehab quality for a SFH rental in Denver?

Question

Okay so i just went to contract on two properties in the same neighborhood and these are my first real deals. Both are SFHs with need for substantial cosmetic rehab. I am planning to rehab and rent with the possibility of flipping if the deal was too good to pass up. But primarily I am a buy and hold investor.

My goal is to rehab to a level where it will attract a higher quality of tenant plus be as indestructible as possible without breaking the bank.

Here are the areas where I have questions:

1. One of the houses does not have a garage - should I add one?

2. Neither house has central air - should I install it?

3. Kitchens are in need of substantial repair but with work, could possibly be reworked so that the room functions, but is not really up to today's granite countertop standards - should I renovate the kitchens with new cabinets and appliances?

4. Bathrooms are run down but serviceable - is it worth a complete renovation?

5. One of the houses has a horribly maintained yard but is a blank slate - is it worth investing in landscaping to raise curb appeal?

Thanks everyone!

Jon Holdman · Answer

Where are these properties and what are the rents?  Some areas and rent ranges demand a higher level of finish than others.

One thing to watch out for is the you CANNOT get more rent than the neighborhood just because of nicer finishes.  Folks who are willing to be in a higher price range will go to those neighborhoods.  You won't be able to squeeze an extra $100 just because your units is extra nice.  So, its key to be just as nice or a bit nicer than your competition.

And you want to be priced at or just below market for the neighborhood.  Sometimes people think if they price their unit high they will get an especially good tenant.  I think its just the opposite.  You'll get a crummy tenant that's been rejected everywhere else and so it willing to pay your high price.  Units that are a bit nicer than average for the area and priced a bit lower for the area will get you a good pool of applicants.

Granite can be really cheap.  I have it in one of my rentals because its not much more expensive than alternatives and tenants love it.

Water is so expensive here that tenants will kill grass and landscaping.  I put some into one of my units to get a better appraisal.  Its all been killed.  So, if you want nice landscaping plan on paying to put it in, paying for the water to keep it alive and paying for someone to mow it.  Now, if these properties are in Denver proper this isn't so bad.  Outside Denver but in areas served by Denver Water (often indirectly) water is more expensive.  In Aurora its horrible.

A garage will get you more rent.  I think its a bit of a tossup as to whether one is a good investment if you don't have one.  I've debated it for years and have yet to pull the trigger.

Rehabbing for rental vs. for resale are two different animals.  If you do the resale rehab, sell it.  Because you'll re-do it if you rent it for a while first.

Gautam Venkatesan · Answer

@Bill Coleman you could compare the features in other rental/retail sale homes on the same street or neighborhood to get an idea of the competition...

Bill S. · Answer

@Bill Coleman so you want a family. Why is the family renting vs owning? You need to flesh out your ideal tenant a bit more. Why would they rent your house in your neighborhood vs the next one over or the one down the street? Does the area have an especially good elementary school so people will rent just to get in it? Why would a family rent it vs two singles looking for cheaper housing?

You mentioned replacing the roof. Why are you doing that? It will not get you a penny more in rent. Is it leaking? If not, why not get a couple more years out of it and save the money for now?

I like granite in rentals but I am also catering to the young professional twenty somethings and that's what they like. I have found it to be durable as well.

Landscaping is necessary for curb appeal to rent but know that it will not be cared for unless you do it. Less than 1 in 10 tenants do anything but mow and only about half even mow unless threatened. Low maintenance Xeriscape is the best way to go. You might hire a moon lighting landscape architect off Craig's List to give you some good ideas. Green sod is nice but expensive and maintenance intensive.

Bill Coleman · Answer

As far as the plan, I  ran the numbers with full rehab in mind but if I can get away with doing less and still achieving the desired result (maximum rental income with great tenants), then I will do less rather than more. I do want it to be flip worthy as I think that will attract a larger pool of qualified tenants. But I don't want to put granite in if that means over improving for the area (which I think it is).

It will most likely be an exercise whereby I do a walk-through with the contractor and decide what is feasible and what is not based on my budget. There are a few non-negotiable items like a new roof and refinishing the hardwood floors, but I will be able to cheat on the kitchen and the bathroom.

As far as an ideal tenant, I really just want a family that has stable income and won't destroy the house but will also go the extra mile and look after the house and neighborhood. Long term renter is good. This family should make a good neighbor.

Adrian Tilley · Answer

I think you need to decide what you're going to do before you start.  For a rental I would be putting in tile in bathrooms and laminate wood in the rest of the house, and no granite.  That may not cut it for a sale though, depends on where they are and what the market demands.

Bill S. · Answer

Usually you have the plan before you get the properties under contract. What is your idea tenant? What do they require? Fix the property to appeal to that tenant. If you outline your idea tenant then I can give you some suggestions based on what I have found.

IMO, if you are worried about tenant damage then you are not renting to collectible tenants. If tenants are not collectible then clean and functional is the name of the game.

How much rehab quality for a SFH rental in Denver?

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