Am I over thinking a kitchen upgrade?

[Benjamin Leung]

So I purchased a house last month for the sole purpose of updating it into a rental property. It had been a rental property before and I got a great deal on it since it was very outdated and the owners were retiring. I have a list of things I want to do to make it rental ready but my roommate and a few other people have said that if it doesn't need it then I shouldn't worry about it. What I don't want to happen is for it to be below rental market value or not rental ready. I also don't want to spend too much money on improvements that won't add rental value. Here is the description of the property: 4 bed (5th bedroom possible) 3 full baths 2400 square feet .6 acre estate lot Right now the kitchen seems too small for a large family and I feel that it is also pretty dank. The sink is scuffed up and looks to have some significant staining, the countertops are a weird yellow color and a lot of the wood on the cabinets are scratched deeply or just kind of grimy. The lighting is less than desired as well. My plan was to add a kitchen island where the boxes are to increase counter space, shift the fridge to the right and build a pantry between the fridge and the counters, replace the sink and add a backsplash for easy cleaning. As far as cabinets, I don't know whether a full replace, just changing doors, or just replacing the counter top is the best choice. Running the numbers for me using the prefab HD/Lowes cabinets/stains ranges between $1k-$3k based on how far I should go. I originally settled on just taking off the door and the outside facing wood since it is scratched and building new face pieces since the inside is fine. Then my pantry would match the finish. My roommate who has been doing a lot of real estate and was an agent in another state said that I shouldn't worry about it since it's a rental. Here is a picture. http://imgur.com/a/oULFX Am I over improving a property? I also plan on doing some other improvements but I don't want to do a lot of it will add nothing. (Ceiling fans, sloping ground away from the house, bricking under porch area, etc) Also ignore the cardboard box island. My dad suggested putting it up to see if an island would help or get in the way.

[John Chapman]

Okay, I'm going to offer some opinions and rebut a couple of arguments that I constantly hear.  First, I cannot stand the argument that you should upgrade a unit only to what the competition is doing.  That is misguided, at least for SFRs.  A rental market  is like any other other market and you need to compete in it.  Just doing an average finish out and charging market rent is not competing.  You'll get average tenants, average vacancies, average everything. You need to compete in either finish out and/or price or both.  I like to have a slightly nicer finish out and market rent.  This generates more interest, more apps, better tenants, and lower vacancies.

Second, don't get lost in the weeds about every upgrade and how much extra money it will bring in each month.  Some people are like, "I won't add a ceiling fan unless I can get an extra $5/month."  That's dumb.  A few nice (and inexpensive) amenities make tenants feel like there living in a place where the landlord cares both about the property and their comfort.  Maybe every upgrade won't get you extra money, but more often than not, you'll get a better quality tenant who will take care of  the property. 

I'm not saying overdo it on the upgrades, but you'd be surprised how little it takes to beat out competition.

In your case, just put the money into the kitchen and be done with it.  ($1k-$3k is just not that much at the price point you're talking about)  Hands down, the kitchen is the best place to put your money and adds the most value, both from a property value perspective and a rent perspective.