Author Topic: Upgrade rental so it will command higher rent?  (Read 1190 times)

Omy

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Upgrade rental so it will command higher rent?
« on: February 20, 2021, 06:52:21 AM »
How much money would you put into your rental in order to increase the monthly rental rate?

I currently have a townhome built in the 80s that has original builder grade finishes. Appliances have all been replaced in the past 5 to 10 years but are all basic black mid range.

Each time we get a new renter we clean everything up, but we haven't done many upgrades. We could instantly make $350 more per month if we made improvements before putting it on the rental market. I'm always torn between putting significant money into the place and just painting and cleaning it up nicely. I'm also considering fixing it up to sell since the market is hot right now (and I'm tired of tenants beating it up).

Some of the improvements I'm considering:
New stainless steel appliances
New kitchen counters
New flooring

Additional improvements that would improve property value:
New windows, sliding glass doors and front door
New interior doors
New siding
New windows
New HVAC and water heater

What are your thoughts on this? Which improvements (if any) would you focus on? What equation do you use to decide if improvements are worth making to a rental?

Papa bear

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Re: Upgrade rental so it will command higher rent?
« Reply #1 on: February 20, 2021, 08:23:02 AM »
For my rentals, I look at first adding functionality, like additional bathrooms or adding AC.  Next would be the show me stuff. Like kitchens, bathrooms, trendy paint colors, fixtures, stuff like that. 

If I can get 15% return on my upgrade, I’m going to “consider” doing it.  Extra 100/month for 8k? I just might do that.   

So in your case, 350/month rent, I’d consider 28,000 in updates.  I’d rather it be closer to 20,000 though.  I prefer better returns. 

Some things need to be done despite getting more rent.  Sounds like you also have a lot more deferred maintenance to do on the place.   Basically anything exterior will bring no additional rent, but has to be done so your house doesn’t deteriorate. 


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Omy

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Re: Upgrade rental so it will command higher rent?
« Reply #2 on: February 20, 2021, 09:30:59 AM »
Thanks so much for the insight! For $20k, I can make several of the improvements. The aluminum siding is dated, but no issues. Windows and doors are functional but not efficient. Roof was replaced last year. We are staying on top of maintenance.


Villanelle

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Re: Upgrade rental so it will command higher rent?
« Reply #3 on: February 20, 2021, 10:44:23 AM »
I think a lot of this depends on the type of unit you have.  If it's a starter place, you may not get much more even if it's nicer.  If it's a larger single family, the ROI will likely be higher.  What is that $350  you think you can get based on?

I don't think anyone pays more rent because there is a new water heater.  Or new siding, unless the old siding is in really bad shape.  Buyers might look at those things, so before you do anything, I think you need to decide if you are going to rent it our or sell it. 

Sandi_k

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Re: Upgrade rental so it will command higher rent?
« Reply #4 on: February 20, 2021, 11:15:09 AM »
I would do modest updates.

If the appliances match and work, I'd not rush to replace them. And if you're not doing repairs annually, I'd let the HVAC run a bit longer, but start saving up cash for replacement.

If the water heater is more than 12 years old, I'd replace it prophylactically.

Countertops, flooring and paint are inexpensive, and renters like it; I'd be inclined to do those cosmetic upgrades.

Siding helps with curb appeal, but gets expensive. If you place looks decent, I'd be disinclined to upgrade it. If your place looks shabby and old, I'd move it up the list.

No one ever paid more rent for new interior doors and new windows, IME. But if you *do* decide to upgrade the siding, that is when I'd replace the windows.

In summary: cosmetic and utility upgrades that prevent unexpected damage now (the water heater); then increase the rent by $150/month or so. And then start saving for HVAC, windows and siding.


Omy

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Re: Upgrade rental so it will command higher rent?
« Reply #5 on: February 20, 2021, 12:06:32 PM »
We have funds to do any or all...I'm just trying to figure out which ones make the most sense to get the most rent. In the past, the decision has been to paint, deep clean, and do maintainence between tenants but we've hesitated to put more money into it since tenants are traditionally tough on rentals. Homes in my neighborhood have a big range in rental income based on upgrades. I'm at the lower end because of things like carpet and vinyl flooring, laminate counter tops, basic appliances instead of fancy. To do the upgrades necessary to get the high end, it will take 4 to 5 years of renting to recoup those costs.

And we definitely need to decide if we will continue to rent or sell. We will do more of the upgrades on the list if we decide to sell.

Papa bear

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Re: Upgrade rental so it will command higher rent?
« Reply #6 on: February 20, 2021, 01:22:01 PM »
If you do end up going the higher end updating, consider getting a credit card with 12-15 months 0 interest.  Crank out the project and let the rent pay back your CC bill after a year. 

Don’t mess it up and forget! You’ll get killed on interest. 


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Omy

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Re: Upgrade rental so it will command higher rent?
« Reply #7 on: February 20, 2021, 01:29:23 PM »
Good idea...or one with a bonus...are there any good ones right now?

Villanelle

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Re: Upgrade rental so it will command higher rent?
« Reply #8 on: February 20, 2021, 05:55:13 PM »
We have funds to do any or all...I'm just trying to figure out which ones make the most sense to get the most rent. In the past, the decision has been to paint, deep clean, and do maintainence between tenants but we've hesitated to put more money into it since tenants are traditionally tough on rentals. Homes in my neighborhood have a big range in rental income based on upgrades. I'm at the lower end because of things like carpet and vinyl flooring, laminate counter tops, basic appliances instead of fancy. To do the upgrades necessary to get the high end, it will take 4 to 5 years of renting to recoup those costs.

And we definitely need to decide if we will continue to rent or sell. We will do more of the upgrades on the list if we decide to sell.

Before you do that, if it is what you decide, talk to some local agents.  They will be able to tell you what local buyers expect and what will be best for you.  It could very well be that local buyers in your target market would prefer a credit, or want specific things.

Paper Chaser

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Re: Upgrade rental so it will command higher rent?
« Reply #9 on: February 21, 2021, 07:37:32 AM »
I'm usually skeptical about updates really being worth it financially from a selling perspective. So much of the value of a home is in the location, sqft, lot size and # of beds/baths. If you're not gaining something in those areas, it might be hard for the cost of the upgrades to increase the value of the property enough to justify them. For example, if an upgrade costs $X, then it would need to increase the property value by X+ Increased realtors commission just to break even.

The math can be different if you're holding the property for a long time and seeing increases in rent directly from them. But keep in mind that $20k in upgrades that net $350/month will take 58 months to break even. So it has to be a long term ownership plan before it really makes sense too.

Obviously, if something isn't functional anymore or has reached the end of its expected life, and needs to be replaced anyway, then it's a decent opportunity to upgrade. But I'd lean towards keeping the cost of the upgrades low if they're only for cosmetic reasons. Steps like painting kitchen cabinets and updating their hardware can give the updated look that tenants want for less cost than complete replacement.

Dicey

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Re: Upgrade rental so it will command higher rent?
« Reply #10 on: February 21, 2021, 09:41:44 AM »
We do upgrades when we buy a property and then we keep up on them. We find it gives a higher quality tenant that tends to stay longer.

Tiny example: Recently, a kitchen faucet crapped out. We replaced it with one that has an LED sensor to show if the water is hot or cold. It didn't cost much extra, and our tenants are Seniors, so it seemed like a good idea. OMG, the tenants were thrilled. Ecstatically so. It was hilarious and we're glad we did it.

mozar

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Re: Upgrade rental so it will command higher rent?
« Reply #11 on: February 21, 2021, 11:06:40 AM »
Quote
I'm at the lower end because of things like carpet and vinyl flooring, laminate counter tops, basic appliances instead of fancy.

You might be able to get used fancy appliances. You can rip up the carpet and vinyl and replace with low cost lvp. For the countertops you can get butcher block from home depot for $250 and seal it yourself. It looks so much better and at that price you won't care if the tenants beat it up.

If you want to be REAL CHEAP get this:
https://www.amazon.com/Livelynine-Decorative-Countertops-Dishwasher-Refrigerator/dp/B07QQB3W2G/ref=sr_1_5?dchild=1&keywords=stainless+steel+sticker&qid=1613930890&sr=8-5
« Last Edit: February 21, 2021, 11:09:49 AM by mozar »

Omy

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Re: Upgrade rental so it will command higher rent?
« Reply #12 on: February 21, 2021, 12:23:34 PM »
I appreciate all the suggestions...thanks!

Papa bear

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Re: Upgrade rental so it will command higher rent?
« Reply #13 on: February 22, 2021, 08:59:22 AM »
I'm usually skeptical about updates really being worth it financially from a selling perspective. So much of the value of a home is in the location, sqft, lot size and # of beds/baths. If you're not gaining something in those areas, it might be hard for the cost of the upgrades to increase the value of the property enough to justify them. For example, if an upgrade costs $X, then it would need to increase the property value by X+ Increased realtors commission just to break even.

The math can be different if you're holding the property for a long time and seeing increases in rent directly from them. But keep in mind that $20k in upgrades that net $350/month will take 58 months to break even. So it has to be a long term ownership plan before it really makes sense too.

Obviously, if something isn't functional anymore or has reached the end of its expected life, and needs to be replaced anyway, then it's a decent opportunity to upgrade. But I'd lean towards keeping the cost of the upgrades low if they're only for cosmetic reasons. Steps like painting kitchen cabinets and updating their hardware can give the updated look that tenants want for less cost than complete replacement.
Given the bonkers rent multipliers right now, 350 extra per month increases the property value 35k-70k.  So for 20k in work, you “could” see 50k in equity gains.  So, the payback time period doesn’t matter much if OP does decide to sell. 

Note, these are bonkers times for rent multipliers.   I’d say in normal times, a value increase of 25-30k would be more than reasonable given the higher rents.


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Omy

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Re: Upgrade rental so it will command higher rent?
« Reply #14 on: February 22, 2021, 12:11:03 PM »
I think your numbers are correct. If I put $20-25k in I would expect an increase of $50k or more in equity (if I sold now). But if I put $20k in now and rent it for 5 more years, I will break even and probably have to put a lot more money in to sell it since most tenants (in my experience) are pretty tough on rentals. That's the conundrum.

Dicey

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Re: Upgrade rental so it will command higher rent?
« Reply #15 on: February 22, 2021, 12:25:06 PM »
I'm not a tax expert, so I'm going to use annoyingly vague general words. One of you awesome mustachian CPA types can feel free to add the proper terminology/Tax Code citations.

There is so much you can do/spend per year and write off in the same tax year. Bigger things have to be amortized over a longer period of time. Therefore it makes sense to keep up on things as you go and get the write-off sooner. I would consider making a multi-year plan to get the property in tip-top shape.

I believe this is also more to your advantage when it comes time to sell the property, for the same (or similar) reasons.

I am merely a decent record keeper and spread sheet jockey. My CPA is worth his (considerable) weight in gold. Not throwing shade, he's a big guy.

PMJL34

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Re: Upgrade rental so it will command higher rent?
« Reply #16 on: February 22, 2021, 01:00:31 PM »
OP,

You have to decide - Are you renting or selling?

Renting and selling often has different and or conflicting needs.

If renting, just do the floating floor and paint. stainless steel appliances if you want higher end tenants.

selling - curb appeal and general upgrades as mentioned.

Best of luck!

Telecaster

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Re: Upgrade rental so it will command higher rent?
« Reply #17 on: February 22, 2021, 01:53:14 PM »
Thanks so much for the insight! For $20k, I can make several of the improvements. The aluminum siding is dated, but no issues. Windows and doors are functional but not efficient. Roof was replaced last year. We are staying on top of maintenance.

Windows are generally the last things you want to upgrade.  They are expensive and they don't improve things as much as window salesmen lead you to believe.

More and more apartments are going with laminate and sometimes even tile flooring (tiles that look like wood).  It looks better than vinyl, easier to clean than carpet, and lasts longer. 

I wouldn't worry about the HVAC or the water heater.  Just replace those on the normal schedule.   

YttriumNitrate

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Re: Upgrade rental so it will command higher rent?
« Reply #18 on: February 22, 2021, 02:08:24 PM »
My last big upgrade to my rental was adding an egress window to a room in the basement to increase the number of legal bedrooms in the house. Cost was about $6,000 and it will pay for itself in about 4 years.

Omy

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Re: Upgrade rental so it will command higher rent?
« Reply #19 on: March 01, 2021, 09:48:23 PM »
Tenant gave official notice today. My gut immediately went to selling (1031 exchange) over renting and DH agrees. It's tough to put money into rentals just to see them get beat up, so we will be looking for a rental that will naturally command a higher rent.

 

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