Bagley Tenants - What a Girl Wants / Needs??

Question

Hey there! First-time-out-of-state investor here! Been discussing some of this with my PM but would love to hear from the local investor community...

Just purchased a great 3/1 SFH (1500sf) in need of a heavy cosmetic rehab on the east side of Bagley. There's plenty of SQ to add a bedroom (office sized, 10.5x7) on the first floor and a second bathroom. Preparing for the rehab, I'd really appreciate some feedback on what top quality tenants really value...

- Half bath: most of the comps seem to have them - are tenants just as happy with basement half-baths, or is main floor a must or big draw? Would a full bath make a huge difference or marginal?

- New cabinets / quartz countertops: I would tend to invest in them if it means less maintenance costs, but it is total over-kill in this neighborhood or are there tenants that will pay top dollar for these?

- Dishwashers, etc... the way the math is working out, a $50-100 increase in rent would justify significant increases in the rehab budget, just wondering what the hot ticket items are.

Online resources / PM report is telling me median rental for this size property in this area is $1500. Worth chasing $1600, or is no one willing to pay that much to live in that area regardless of the finish? All thoughts welcome!

Kevin Sobilo · Answer

@Georgia Godfrey, excellent you are thinking the right things. You realize that your experience in your market may differ from what renters in this market may expect.

I was speaking generically about a B class single family, but what I do on an ongoing basis is look at rental listings to see what the typical is for a B class and a C class unit are in my area then when I am making decisions I want to meet ALL of the typical expectations for that class of rental AND I want to find a few ways to exceed it.

When I decide how to exceed the typical, I look for low hanging fruit. Every property is different. In my area dishwashers are probably 50/50 in a B class rental but I try to add them when it is easy to do. I also include washers and dryers where maybe 1/3 of B class rentals include those appliances. That is a super easy one. I also allow small pets and we know MANY rentals don't allow pets. So, doing some things like that sets you apart and helps you attract and keep those renters.

For example with pets, it can be VERY hard to find a decent rental with a pet. So, a good renter is much less likely to want to leave knowing how difficult it will be!

Georgia Godfrey · Answer

Thank you @Kevin Sobilo! I agree, I'm happy to invest in the property if it means higher quality tenants that stay longer and more predictable capex/maintenance. My instinct is yes, add the main floor half bath, yes, add the durable countertops, yes, add the dishwasher - but I have to admit I don't know what local market expectations are. Want to make sure I keep my capital velocity relatively high, so I worry about coming in with my out-of-town POV and over-rehabbing if it's not something that's really highly valued locally (i.e., translating to higher rents, i.e., helping me pull cash out on the refi). You're right - shouldn't loose sight of investing in tenant experience!

Travis Biziorek · Answer

Hi Georgia, I have a 3/1.5 in Morningside that's probably similar to what you're doing here in Bagley. I paid $40,000 for it in 2020 and put about $70k into the rehab.

Some things we did: opened the kitchen to the main dining area, creating that open concept look/feel. Obviously, all new kitchen with stainless appliances and, yes, a dishwasher. We did butcher block on the counter tops. I like butcher block because it's nicer than laminate but not over the top like quartz.

We have the half bath on the main level. The full bath is upstairs with the bedrooms. While a basement half bath is better than nothing (especially if it's done well), it's not going to provide the value a main level half-bath would. That said, it's relatively rare to have this but it's a huge bonus.

Other than those things, refinished hardwood floors, upstairs bath is original and has a lot of character, new interior AND exterior paint, new roof.

Happy to share the listing with you if you want to see photos. We just turned it over and it's rented for $1,700/mo now. The home initially appraised for $170,000 when we finished it up in 2021 and is probably worth north of $200k today.

Alex Hileman · Answer

Hi Georgia, I would recommend going on Apartments.com or a similar website to look at the rentals near your property and the level of finishes they used, and how much they are charging for rent.

In general, having a bathroom on the main floor and a dishwasher adds value. Granite or quartz countertops need to be sealed and maintained. You can use cheap products that still look nice, like butcherblock countertops and subway tile. See what your competitors are doing and go from there.

Rogelio Lara · Answer

At least 86,000 dollars cause I had a property we gutted rewired electric and ac $2000 easily and clean up was about 12000 sheet rock insulation ,paint and rock  yep 86000 plus our purchase was 50,000 initially 19000 at county

Georgia Godfrey · Answer

Thanks so much @Travis B.! I'd love to see the listing! Feel free to DM me if you prefer.

Kevin Sobilo · Answer

@Georgia Godfrey, rent price isn't the only measure of how much money you will make. Its an easy one to get overly focused on though. Attracting and KEEPING good tenants in many cases means MORE than a modest difference in rent.

With a nice single family home perhaps B class, I would want someone to potentially think of it as their "forever home" as many people are lifetime renters. So, I would make my decisions with that in mind. Attracting a good tenant that stays several years is much better than attracting tenants who stay 1 year at a time and eventually you'll hit a bad one.

So, with that in mind, if I decided to make that additional room on the first floor, it would be geared to be an office. I likely wouldn't even advertise it as a bedroom being that it is so small. I would absolutely add a dishwasher. I don't understand why you feel that would be a significant budget hit. You add a GFCI outlet under the sink for it and all the other water and drain connections needed are right there under the sink. You are doing countertops etc anyways.

I think of a dishwasher as being a $20-25/month thing. Keep in mind the work to do the rough work (plumbing and electrical) last virtually forever. So, in an ongoing basis only the appliance itself needs to be replaced when it fails. Also, the potential added rent is immaterial in my mind because attracting and keeping a good tenant longer far exceeds that.

Figure out what your vacancy and turnover costs would be over 9 years if tenants turn over every year versus every 3 years. The lost rent and also the cost to prep the unit and to get it rented again including any tenant placement costs your PM hits you with.

Bagley Tenants - What a Girl Wants / Needs??

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