Anyone renovate while unit is occupied?

Question

I've been lucky in that all my previous condos were bought vacant which allowed me to get in and renovate and change our wear items which gives me long term peace of mind. I bought a quad last November which was fully rented with long term (3+ years) tenants who all want to stay as they see me as more proactive than their previous landlord.

A few of the units look to have original kitchens (circa 1950's) but tile floors that were redone in the 90's (with some hideous grey pattern that reminds me of the set of the Golden Girls). For the most part it seems that some simple repairs and small updates would keep these places running except one unit.

This unit was not touched in a while and it is the largest in the building. The current tenants moved from another unit to this one with no repairs being made in between as they needed more room.The kitchen cabinets are starting to give up the ghost and the floors have a large amount of cracked tiles. I'm looking at the cabinets and thinking I can pull them out and just replace them with some store bought ones with a new counter pretty easily. I've only really seen that done though when the floor was redone before though.

Given that these tenants are very low maintenance and want to stay I'd like to figure out a way to start updating these units to force some appreciation. The tenants in this unit have said they will be traveling a bit during the summer so I can have access to the unit to do what needs to be done.

How would you guys suggest I tackle this problem? Replace the cabinets now, find some generic tiles to replace the cracked ones before they break and have sharp edges? Or bite the bullet, roll up a POD and have the unit cleared and re-tiled and replace the kitchen while the family is traveling?

Very interested in other ideas.

Marcia Maynard · Answer

It is a fair question.   Here is some info to put it into perspective.

The hotel bill was $297.76 and covered three nights for two people with full breakfast.  Renovation costs: Materials $2480 and Labor (professionals -  licensed, bonded, insured) $2720.  Total cash outlay, not including our own labor and time = $5498.  (new hot water heater, new flooring, new countertops, new sink, new faucet, new range hood, replace range with used from another unit of ours.)

We keep healthy reserves to cover expenses such as maintenance, repairs, capital expenses and emergencies.  The hot water heater was scheduled for replacement in December 2013, but we didn't get it done on schedule.  Our folly.

Duplex unit built in 1967.  We've held it since 1995.  It was paid off in 2008.  Current market value $220K.  Rental income $1260.  ($660 + $600).  The other unit was renovated two years ago and rents for $660.  This unit rented for $600, but now that it is renovated we will raise the rent to $630 in May and $660 next year.

Tenant is on fixed retirement income and we want to keep her. She has been in place since 2001 and would like to live there as long as she can.  She is retired and has some health issues.

We get a call from her that she smells something musty and notices a bump in the kitchen floor, near the hot water heater.  Of course we will respond quickly and do whatever we need to do.  Our concern is to mitigate the damages - potential health risk and structural damage.

The first thing we do is get on site to examine the problem.  We quickly determine the damage is extensive and some mold has already taken hold.  The prudent thing to do is to move the tenant out.  The building is pre-1978 construction, so we need to "Renovate Right" and take precautions related to potential lead based paint.   I have EPA Lead Certification and I understand what needs to be done in that regard.  I am also adept at removing mold.

The tenant is now happy.  Actually "wow!" happy.  We did what we needed to do and of course documented well.  It was definitely worth it.

Richard C. · Answer

Sometimes it is the right thing to do, and in some markets, doing the right thing is absolutely necessary from a strictly business perspective as well.

I won't claim to be a big-time operator.  I currently own two SFR in addition to my personal residence.  This are in VERY small towns.  Your reputation is absolutely critically important.  Paying to keep things current is good business as well as the right thing to do.

Also, not everyone invests strictly for maximum cash flow.  Part of my strategy is have an easy exit lined up if I need it.  Keeping the houses updated means I can sell to an owner-occ with minimal lead time.

Roy N. · Answer

Andy:

In the context of a view encompassing only the immediate bottom line, your above statement fits and makes sense.    However, there are occasions where it is prudent to renovate even if you have a long term tenant who may not be asking for it.   If your kitchen cabinetry, bathroom fixtures, plumbing, floor, etc has reached the end of its useful life, it may be putting both you and the underlaying structure of the property at increased risk ... or, it may simply result in a bigger effort being required later when the unit does turn-over.

The worse case scenarios, though statistically rare, would be failure of a fixture, cabinet, or appliance causing injury to a tenant or extensive damage (ie. fire ) to the property.   A more probably outcome would be the example of water damage to subfloor or structure arising from failing plumbing/fixtures or cracked tiles in a bathroom.

Sure you can patch these things for a while, but eventually, it makes more sense to simple replace them.

Given your background and experience, you are obviously aware of that being penny-wise is often pound foolish ... so, I'm guessing you are playing the role of instigator here to ensure the other end of the spectrum is considered.

Aside from determining when a renovation constitutes preventive maintenance, there is the factor of basic human dignity.  It is here where I find the position exposed in the above post to be incongruent.  All of our tenants, regardless of whether they are an aid to a government minister renting a furnished flat, or a single parent struggling on social assistance merit a clean, safe and functioning home.  Sure the high-end furnished flat will have nicer finishes and more amenities, but both will be serviceable, safe, and clean - after all, we are providing a housing service to our tenants, not simply letting a box.

Yes, some tenants won't appreciate the fact you put a new kitchen in their unit and will not take care of it, maybe even ruin parts of it though neglect. It is our job to catch those folks when screening to ensure they never move-in in the first place {BTW:  It's not just working class tenants, or those on assistance, who are hard on properties, we had a young, hot-shot, lawyer cause unbelievable damage to a freshly renovated flat in just six months}.

So Chris, while Andy's message that you must always be looking at the business sense/purpose in doing a renovation - and make best efforts to mitigate cost - is correct, the "business case" can have a longer term purview and wider scope than the immediate bottom line.  Yes, you must not loose money, otherwise you won't be business, but you need not forego safety and decency in the interest of wringing the last pence from the purse.

Matthew Paul · Answer

When doing renovations , a 3 day job , never gets done in 3 days , A $ 500 job always cost more , and  if it can go wrong It will , twice .

Marcia Maynard · Answer

Oops! That post got away before I typed my response.  To Mark  Forest , yes, it was a chunk of change, but we had it in the budget for investing in our property. We don't do extensive renovations solely to keep the current tenant.  Fortunately we can and will do renovations with a tenant in place when it makes sense to do so.

Renovations are necessary from time to time for the long term viability of the property and safety of its inhabitants.  @Roy N. explains the importance of this nicely in his post.  Sometimes it is just the right thing to do.

Roy N. · Answer

Steve,

We have a tenant who had been in their unit for 8-years.  We had been trying to get in and redo the bathroom for over a year, so finally we rented a cottage for a week and sent them out of town.

The tenant will be coming up to their 10th anniversary this May.   A few nights in a hotel, or a week on the lake, is cheaper than a month of two of vacancy.

Andy Luick · Answer

@Richard C. - good points Richard - it comes down to a blend of personal philosophy and tastes.  Even in a much larger metropolitan market, reputation is everything.  There are absolute slumlords who make great returns but many are just awful people.  I do things on some of my homes that others would call me hypocritical or downright foolish on.  I am delivering another fridge to one of my unit today, a $1,700 double-wide, that I got scratch & dent for $850.  Current fridge was a little too small for the 4 men living there.  I could have ignored their request but the result will be 4 mini-fridges which will just waste electricity and leave food & crumbs in the rooms....bringing bugs.  It's easier to reward them with a newer and fancier fridge and everyone remains happy!  Most of what I do is shared housing so it's different than most....but taking care of good renters is key to success in this business long-term...regardless of where you are in the country.  In the inner city, you have to be harder and temper your kindness with sounder business judgement or they will run you over like a freight train!

Some people just like to own properties...and some really honestly don't care about the returns.  Others are like my 88-year-old mother who still invests and cares very much about her returns....it's a game for her and keeps her active.  There is every variant in between.  Being able to have the property in "retail" or "flip" condition can be a good strategy....but, usually, if it isn't producing revenue....I'll defer it until I am ready to sell.  There isn't much in updating that I can't get done in a couple of weeks but then again I own a contracting company so it's easier for me to do.  Happy Investing and thanks for sharing!

Andy Luick · Answer

@Roy N. - exactly Roy - I run nice units but some of the tile in my homes is very dated...but it's clean and works for my model.  My tenants enjoy the place but anything broke, rotted, patched together or presenting a danger is addressed immediately.  I've seen a lot of investors go broke trying to make a rental look full retail or as if they were going to live in it.  I too, get criticized for putting in $250 ceiling fans with remotes or $200 kitchen faucets in my rentals and better quality hardware.  I overspend there because it makes sense to for me.....

@Chris M. - with the added details - yes, you now need to be doing something. As landlords, everything isn't measured by the dollar....there is a lot of value to keeping a long term tenant happy and you now have reached a point where you have to do something.  If the cabinets are shot, you can change those out and if the flooring is so dated....might as well bite the bullet and do it now.  I can't tell you how many times I buy a property and investors have gone cheap and we just have to rip out what they did.  A project we are working on now had 1/4" underlayment under the tile which all cracked because it needs screwed down 1/2" underlayment to keep the floor from flexing and cracking the tile. Doing it right the first time is usually more expensive but then you never have to redo it.  Plus, when we sell our rented units off, we do so with a 3-year warranty on all of the work we performed.  Let us know how it goes!

Chris M. · Answer

@Andy Luck thank you for that detailed post. I will definately take your advice when approaching this project.

The cabinets being original are starting to fall apart. One drawer gave up the ghost a week ago, the paint is flaking off and there are so many layers of paint that the drawers can barely close. Hinges are sagging so cupboard doors don't close, shelves are cracked and sag and the stove was shoehorned against the countertop so that it scorched the laminate and caused it to curl up. Its in pretty bad shape and patching it up will be never ending. Its the worst of all the kitchens in the building.

Anyone renovate while unit is occupied?

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