How do I know if a repair would increase rental value?

[Jimmy Lieu]

How do I know if fixing a cosmetic issue or doing a specific rehab would increase the rental value of a property?

For example, after I close a property, I will be fixing everything on the inspection list. However, inspectors don't report on cosmetic issues. Because of this, I will be bringing in contractors to find the cosmetic issues and write itemized bids for how much it would take to fix.

My question is how would I know if fixing a cosmetic issue would increase the rental value of a property? Some people I've talked to have said that they will only do a repair if it will increase cosmetic issue or reduce turnover. My question is how would you know that?

Or is it one of those things that you need to look at other rentals in the area and see what type of finishes they have and match them?

[Bridgette Delva]

Hi @Jimmy Lieu!  Since you use the term "fix" that leads me to believe that something is broken or wrong so I would absolutely "fix" anything that's broken.  Cosmetic items are hard to quantify BUT they can absolutely turn off potential renters.

I would say that I agree, to a certain extent, that you could look at other properties and then determine if you should fix the issues but our personal investment style is that we want our properties in tip top shape so we can get tip top rent so we attend to the small and large items.

For example, we are getting $3200 for our single family rental in a market where comps are, at best, $2300.  That is because we have several "wow" factors and there are no opened ended cosmetic "fixes".  The way we think about renters is that they will pay what they can afford and will pay for the house that they "want"; this is very different than buyers, who generally can only buy what the bank will lend them and that's limited by what the market says the house is worth.

So, my point is that if those cosmetic "fixes" will deter potential renters or prevent you from getting the most optimized rent, just fix it.  Besides, if renters see that you don't care enough about your property to fix the small things, they'll treat the same way as you do.

I'm also curious as to what type of "fixes" you are referencing.

[Bridgette Delva]

Hi @Jimmy Lieu!  Since you use the term "fix" that leads me to believe that something is broken or wrong so I would absolutely "fix" anything that's broken.  Cosmetic items are hard to quantify BUT they can absolutely turn off potential renters.

I would say that I agree, to a certain extent, that you could look at other properties and then determine if you should fix the issues but our personal investment style is that we want our properties in tip top shape so we can get tip top rent so we attend to the small and large items.

For example, we are getting $3200 for our single family rental in a market where comps are, at best, $2300.  That is because we have several "wow" factors and there are no opened ended cosmetic "fixes".  The way we think about renters is that they will pay what they can afford and will pay for the house that they "want"; this is very different than buyers, who generally can only buy what the bank will lend them and that's limited by what the market says the house is worth.

So, my point is that if those cosmetic "fixes" will deter potential renters or prevent you from getting the most optimized rent, just fix it.  Besides, if renters see that you don't care enough about your property to fix the small things, they'll treat the same way as you do.

I'm also curious as to what type of "fixes" you are referencing.

[Jimmy Lieu]

Originally posted by @Bridgette Delva:

Hi @Jimmy Lieu!  Since you use the term "fix" that leads me to believe that something is broken or wrong so I would absolutely "fix" anything that's broken.  Cosmetic items are hard to quantify BUT they can absolutely turn off potential renters.

I would say that I agree, to a certain extent, that you could look at other properties and then determine if you should fix the issues but our personal investment style is that we want our properties in tip top shape so we can get tip top rent so we attend to the small and large items.

For example, we are getting $3200 for our single family rental in a market where comps are, at best, $2300.  That is because we have several "wow" factors and there are no opened ended cosmetic "fixes".  The way we think about renters is that they will pay what they can afford and will pay for the house that they "want"; this is very different than buyers, who generally can only buy what the bank will lend them and that's limited by what the market says the house is worth.

So, my point is that if those cosmetic "fixes" will deter potential renters or prevent you from getting the most optimized rent, just fix it.  Besides, if renters see that you don't care enough about your property to fix the small things, they'll treat the same way as you do.

I'm also curious as to what type of "fixes" you are referencing.

Hi Bridgetta,

Wow, what a great answer. Thank you so much for helping answer my question and that definitely clarified things a lot for me. I guess I had the words repair and cosmetic fixes mixed up. I meant to only write about cosmetic issues only. Yes, I would 100% repair anything that is broken and make sure everything is functioning as it should be. My question definitely only was pertaining to cosmetic issues.

You answered my questions really well! Some examples could be like the interior painting doesn't look to amazing or kitchen cabinets seem a bit outdated. As stated in your answer, you would fix these cosmetic issues then to get top rent?

However, where do you draw the line? How would you know whether to go for the $75 chandelier or the $500 chandelier?

Also, I don't want to overimprove the property as I've heard that's not the best thing to do.

Thanks so much.

[Alex Lien]

Have to agree with Bridgette, although I wouldn't necessarily always have your properties in tip-top shape mainly because depending on the area it might not add any value to your rent.  Sure it will make the tenants happy which is important but you could end up losing money which defeats the purpose of updating and having a rental.  

Generally, well-kept homes will usually lead to tenants that respect your property and want to live there long term, if the property looks like trash it's going to get treated like trash.  If tenants stay longer then that's less hassle for you in the long run and will save you a bit of money not having to deal with people moving out every few months.

To answer how do you know when a repair adds value to the rent, it's mainly opinion based.  Ask yourself this "would I be happy living here and dealing with this every day." If the answer is no, then figure out what's causing that and see if its something that makes a persons every day living just a bit easier to deal with. If people don't have to worry about a bathroom door that won't stay open and they're constantly messing with it, the first thing they're going to think is "why am I paying X dollars for this place".

[Bridgette Delva]

@Jimmy Lieu ahh, I understand and thanks for clarifying.

First step is to determine how much you can afford to do. Say you want to do $5,000 in upgrades...

I would certainly not run out and get brand new cabinets as a first option. If you are hands on, I’d first try to sand and maybe paint them myself. Second option would be to pay someone to do that. It may cost you anywhere from $1000-2500 depending on your market and how many cabinets you have. People pay for updated kitchens: renters and buyers alike. Unless they’re falling apart, I wouldn’t replace cabinets.

I would 100% paint an updated and neutral color in the house. That’s cheap and improves aesthetics 1000%. Painting outdated window seals, baseboards and doors are icing on the cake.

Do things like update light bulbs to white vs yellow lighting. Change hardware on the kitchen and bathroom cabinets. If you can afford it in your budget, update light fixtures.

Ultimately kitchens and bathrooms sell and rent houses so do what you can to make those look amazing and functional. Replace bathroom fixtures if needed because those can get pretty nasty.

Other small things like replacing warped or missing HVAC registers add a small touch.

Curb appeal is also nice but I’d limit that to the things that don’t need maintenance like mulch or crushed rocks or something.

These are just top of mind ideas to get you going but start with a budget and maximize it!

[Mark H. Porter]

Follow the rule that you only improve, or throw lipstick on it, until you’ve maxed the rent and reduced expenses.  From there it is almost wasted spend.

[Michael Thach]

I can only agree, do and spend only the minimum to push the rent to the top level of your area. You can have the nicest granit countertop and the most expensive light fixture but if your property is in C area you won't attract the tenants you appreciate it anyway. There is no need to change your carbinets from pressed wood to hardwood with dove tails if your tenant are working class tenants. They don't know how to appreciate it and if they do they won't pay you enough to make it a good investment. 

Usually what will give you more value is adding a room. laminate, tiles, hardwood flooring > Carpet , Stainless appliances > Non Stainless  , Granite Countertop > non granite   .... if you rent to normal working class and middleclass renters they don't know if you bought the laminate flooring for $1/sqf  at your local hardware store or $3.99/sqf imported from italy.  

Also don't fix 100% what is written in the inspection report. Many stuff is just bringing outdated codes to current ones and those are not necessary. Don't forget this is a business. Is not your personal home where everything needs to be 100%. 

[Mark H. Porter]

Dang, forgot about the inspection stuff.@Michael Thach Says it all

[Theresa Harris]

When updating, don't go for the cheapest replacement as it could cost you more in the end.  Go for classic finishes, pick material that is solid and won't fall apart or break and is durable over time.  Remember you want a solid, clean house that tenants will take care of.  A coat of paint goes a long way to changing the appearance of a room and updating it.  If you have carpet and it comes time to replace it (wait for a change over in tenants if it is in good condition now), think about vinyl plank or a durable surface that won't need replacing every 5-10 years.  Having the place vacant costs you money.