Landlords - renting out a house with basic improvements?

Question

Morning BP.  I tried searching for this and didn't find much discussion.

Has any landlords out there, on BP, that did the minimum updates, and market their rentals for under market rent?

Definitely NOT slum lord standards, but renovating the house to meet basic safety standards - to code. (e.g. new mechanical systems, HVAC, hot water tank, flooring, paint etc) But NOT thoroughly rehabbing it (e.g. new kitchen w/ granite, new bathrooms, new plumbing, electrical, windows etc)

Personally, I have always rehabbed my rentals nicely, and asked for higher market rents. But that took more time rehabbing, and more time filling in vacancies.

What if I did the minimum, and charge under market rent but fill vacancy faster? I can think of a quite a few PROs and CONs doing this.

Looking for a HEALTHY discussion please. Thank you in advance.

Nathan Golding · Answer

I think the location and what type of house you are buying depends on the repairs/improvements.  Also who your target renters are.

I personally specialize in buying older homes 1900-1970 and get them fixed up to the point where they look nice.  I rent to people that want a B grade rental and have pets.

I paint the walls but I don' t replace the paneling with drywall.

I rip out bad kitchen cabinets but I replace them with craigslist used ones

I leave in old carpet if it is still in good shape but not a nice color.  Great for people with pets since they trash carpet faster due to accidents.  I tell them up front the replacement cost is next to zero for the original carpet.

Also a lot of the older homes use real lumber for the floors since plywood did not exist yet.  I paint or stain the wood to get hardwood floors in my home.  Takes less than 40 dollars to do a room and under an hour so scratches and stains don't bother me.

I avoid

Garbage disposals.  Constant repair calls on them

Bi-fold doors (half are garbage when a tenant leaves after a year)

Sliding screen doors (tenants wreck these constantly)

I rent my units 25-50 dollars less than market (hard to tell since I have mine in small rural towns).  I have never needed to run a facebook listing for more than 30 hours to get 10 plus people interested in it and rented out.

Thomas S. · Answer

There is nothing wrong with doing minimum rehab to achieve a nice rentable unit. There is everything wrong with charging under market rents. Market rent is market rent, it is based on the area and what you have to offer. Above market rents may be achieved by tricking out a unit to the 9s and attracting a tennat with more money than brains.

Charging under market diminishes the value of your property and attracts lower quality applicants. If you charge market you will attract appropriate tenants for your area.

Under market rent is normally charged by hobby landlord investors or lazy investors that do not wish to be engaged in operating a business.

If your managing your business you should expect nothing less than market rent.

John Underwood · Answer

@Chris T. Nothing wrong with not fully tricking out the house on a rental. Just make it nice without the high end finishes. Then look at other active advertised rentals and find comparables based on area, sq footage, bedrooms, and finishes and see what the going rate is for similar properties. Then charge market rent based on equivalent properties.

Then compare the normal higher end finishes you have used and what equivalent properties are getting for rent.

Then you can make a decision to where to reel in the rehab or go for broke.

Steve DellaPelle · Answer

My unit was in pretty rough condition before I rehabbed it, but I didn't have the budget for a total update so I did the basics...

- Ripped up carpets and re-finished the hardwood

- Fresh coat of paint

- Laminate flooring in the bathroom

- Stick on splash for the kitchen sink area

- Few other minor repairs

- Brand new stainless steel oven (all other appliances stayed the same)

After all of this was finished up for about $5,000-$6,000 I was able to rent the unit out for just above market average in my area. I am also in a C+ neighborhood so doing a total update wasn't necessary.

Andrew B. · Answer

There is nothing wrong with putting in basic finishes that provide adequate quality of life to tenants. if you go to large apartment complexes, this is what most of the middle of the road ones do. if you do it in a home, you will probably get the same quality tenants paying similar rates. I think the reason a lot of investors go high end in single family homes could be because you only have one unit, so the profit margins are squeezed, in order to turn a nice profit, you must command higher rents.

Aaron K. · Answer

The reason that you don't see much discussion is that most investors do everything or nothing, because if you start putting in paint and flooring it is hard not to justify a couple thousand extra for granite etc. which will boost the rent the most.  The other camp of investors puts off maintenance for as long as possible and essentially bleeds a property dry and may have trouble selling at the end because so many repairs have been deferred.

Rob Cook · Answer

This is a good question and as others have indicated, there is no correct, universal answer.

In my own case, I buy old crappy places, period.

Have gotten a few nicer ones which were already renovated and so have a mixed experience on this subject.

And my main thought process is, it all boils down to your tenant screening process and what type of business you want to run.

I have rented the same places out, several turnovers, without ever painting, changing ruined carpets and vinyl, etc. because I could.  And of course, this was essentially disrespecting the tenants, kind of bullying them since they were desperate at this low end of the market and had no power. I regret that even though I could get away with it and made more money probably as a result.

In the last couple of years, we changed our perspective on this, and now treat tenants with respect, and therefore have the right to demand the same from them.

If they disrespect my property, then they have fooled me in our screening and such.  Move on, but don't take it out on the next tenant by handing them a crappy home to live in, and then expect them to respect the property or the landlord. A vicious cycle that we as landlords have control over.

Just as all pets are not equal, neither are all tenants, even among those who pay the same rent amount.  The tenant screening is the key, as I am learning more and more.

Chris T. · Answer

@Andrew Boettcher That's exactly why I rehabbed my sfh with high level finishes.

@Steve DellaPelle @Nathan Golding @John Underwood thank you for the tips.

@Thomas S. makes sense. thanks

Landlords - renting out a house with basic improvements?

Most Popular Reply