Week 27: Renovating a Home to Rent

Focus on the Tenant

It is easy to become product-focused in a new purchase and rehab project, but you must not lose sight of what it takes to attract tenants in a competitive market. Product focus has to be balanced with client-focus.

Keep the tenant top of mind so that all costs of a competitive product are built in up front. Making a property competitive in the marketplace costs money, and failing to plan accordingly will negatively impact your ROI. I often add 20% to any final cost estimates.

Preparing a Home for a New Tenant

Every unit we manage must be safe, clean, and secure, with all mechanical systems working. We also recommend that properties be upgraded to—but not beyond—the standard of their neighborhood. We want to offer the best value in the neighborhood, and if we can make a good ROI for our clients and charge less than the competition, everybody wins.

The biggest mistake I made early on was improving my properties beyond the neighborhood standard. Other times, I was just wrong about how much things really cost. 

When negotiating with a contractor, keep in mind the costs they must consider within the bid. A reputable contractor is going to have overhead, including transportation costs, insurance, licenses, and tools. A low bid that omits these costs can end up costing you money and time. We eliminated the likelihood of ‘slush’ in a bid by requiring all bids to separate labor from material costs. That way, we only pay the actual cost of materials. And a labor quote that seems too good to be true probably is.

Conclusion

Think about all of the things that go into rehabs, repairs, and the ongoing maintenance of investment properties. Many investors get into financial trouble because they overpay for services or underestimate the costs. Preventing, or taking care of tenant emergencies and maintenance concerns in a timely manner reduces tenant turnover and improves occupancy rates. 

Consider These Suggestions When Renovating a Home to Rent

Here are a few items other investors may not do:

• Replace the toilet(s) or at least the seat. Use the larger units found in new homes.
• Install air conditioning 
• Make as many things handicap accessible possible. (Bathtub grab bars, for instance.)
• Dishwashers are appreciated – stick with a very basic unit.
• Install garage door openers. Remotes can be replaced inexpensively.

• • Exterior lighting – make sure what is there works.
  • If there is a partial fence, consider completing it and/or installing gates that can be secured if they are missing. 
  • Install storm doors front and rear. 

• Washer and dryer hookups are imperative.

• Keep the grass mowed and trimmed. Pull old bushes out and add mulch and maintenance free foundation plantings. 
• Install a new mailbox and house numbers. 
• In Ohio, vinyl replacement windows are a big selling point and we are continually amazed at how many investors skip this step in an effort to save money. Check Lowe’s and Home Depot prices against local sources. 
• Paint the basement walls and the basement floor, including the stairs leading to the basement. This goes a long way towards showing the care you took with the rehab. 
• Clean and touch-up paint furnace and water heater.

It often is the little things that help the most.

In this blog post from 2009, I highlighted in more detail why this part of the business can be so frustrating for so many investors.