Every day, landlords have to make strategic decisions regarding managing their rental properties. When tenants are in, routine maintenance and seasonal activities might be necessary, and emergencies can arise at any time, day or night. When tenants leave, however, the landlord can review the property to determine if upgrades or improvements are required to get the place in shape for the next resident. Cost is always a factor, and overall profitability often comes through a careful balance between keeping costs down and rents up.
The existing housing community situation can have a bearing on how landlords approach rehabbing their rentals. When the housing industry collapsed in 2008, thousands of single family homes were lost to foreclosure, and thousands of those have sat empty and unused ever since. As early as 2010, though, industrious investors noted that the number of properties available had caused sale prices to plummet, making them ripe for investment purposes. Since then, across the country thousands have been purchased at rock bottom prices to be “flipped” and used as investment vehicles as rentals. In the process, housing prices began to rise, which slowed the investment market but drove up the need for rental properties since people couldn’t afford the higher purchase prices.
As the economy improves, a generation of millennials are moving out of their parents homes (again) and looking to start their adult life (again). For some, the (still relatively) inexpensive fixer-uppers are worth buying. For many others, renting is the only option. They’re looking for more than just a place to live, though. Having put off independence while riding out the recession storm, they are now seeking quality homes in which they can express themselves. Landlords have an opportunity to improve their own fortunes by offering quality, well-managed rentals at prices that reflect that value to the renter.
Many factors go into determining the rehab value, if any, to put into a rental unit. One investor suggested renovation/rehab costs should total 25% of the purchase price if the house were a foreclosure. Foreclosures may require extra attention, however, since it is not unheard of for out-going owners to damage the house on their way out the door. Foreclosures are often older homes, too, so their systems (plumbing, electricals, etc.) may need to be brought up to code before renting or selling. The landlord needs to keep costs as low as possible to see any profitability from the unit.
For many landlords, the opportunity to improve profitability can drive sound rehab decisions that also add value to the home and the rent. Either at the beginning of the landlord ‘career’ or between tenants, landlords can reduce their future costs of maintenance by following a few of these suggestions:
1. Replace surfaces that are difficult to clean with those that are easy to clean. Replacing carpets with hard floors (inexpensive laminates or tile) eliminates expensive carpet maintenance down the road;
2. Look for internet deals on appliances and fixtures. Replacing older versions with low-cost newer versions can justify an uptick in the rent;
3. Consider adding ‘one extra’ thing that sets the unit apart from comparables in the neighborhood. A dishwasher or claw foot tub shouldn’t cost too much, and the added ‘bling’ may improve monthly revenue;
4. Paint, paint, paint. That new paint smell can be a powerful motivator for tenants who want a clean, “never lived in” sense to their new home. And an overall clean unit (corners, backs of closets, etc.) is an attractive feature, too;
5. Replace old switch plates with new switch plates on lights and electrical outlets. There are dozens of varieties and styles available that can add a distinctive look for almost no money.
The real estate industry has been a bedrock of the American economy since the beginning of the country. Recent developments – the recession and the new ‘boom’ in investment buying – only underscore its continued role in the future of the country’s economic status, too. For landlords seeking to hang on to their little part of the American Dream by renting it out to others, there are plenty of people looking to rent a quality, nicely appointed abode at a decent price. If you are serious about a landlord career, contact us to get started.
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