Residential Rental - Home Improvement Upgrades

[Greg Heden]

I own and operate a high-end full service remodeling company in the Phoenix metro area.  I recently have purchased a four-plex and single family residential home to add to my RE portfolio.  The challenge that I have is wanting to correct all the DIY and lipstick on a pig improvements that have been done throughout the years.  I have trouble just making them clean and livable and calling it a day. Fortunately I can facilitate all the improvements at cost but is it realistic to think I can draw a higher end renter that is willing to pay above market rent to live in much nicer appointed home?  Has anyone approached their rentals with this mentality? What percentage over local market have you been able to achieve? Thanks in advance!

[Andrew Postell]

@Greg Heden this is a common topic of discussion and the method that always comes up - what do your comps say?  Meaning, we can't over-improve a property based on the neighborhood.  Sometimes people will ask "Should I enclose a garage?".  And the answer is - what do your comps say?  If that neighborhood demands having a garage...then you might be damaging your value and rentability by enclosing that garage.  So, even though you would be adding square footage in that scenario, it might be counterproductive.  But then there are neighborhoods where enclosing a garage is fine.  Same can go for finishing a basement, putting in granite countertops, adding a pool, flooring, etc.  Especially when the economy is putting the squeeze on certain demographics...you may not be able to press for ANY above market rents - because your competition is renting for cheaper.  

We usually make our money when we buy.  So, depending on your acquisition price, maybe you can put in some extras but I would highly encourage you to base your decisions on what your comparable properties show.

Hope all of that makes sense.