Property owners and landlords can unfortunately run into situations where their rental property needs a substantial remodel or repair in order to command the rent it should be or even become rentable in the first place. How you got into the situation is irrelevant. Whether your property was damaged by past tenants, you inherited an aging property, it is simply becoming dated, etc. the results remain the same. You must get your rental back on the market and into a state of a revenue-generating state.
Below we will cover a general overview of a useful process you can go through before making any big decisions. This advice isn’t meant as comprehensive, but it should provide a general structure for you to move forward with a remodeling decision with the confidence that you’re taking the right approach.
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Identify the Extent of the Issues
You can’t begin to decide how to move forward with a project until you know the extent of the damage. With houses and other buildings, especially old ones, it is difficult to ever know 100% of the issues until you can pull back some layers and investigate further. A problem with a rotted subfloor may reveal itself to have extensive structural damage in the floor joists once the subfloor is demolished for example.
Hire a professional contractor or home inspector to help you examine your issue, provide rough budgetary pricing, and give you a general idea of what you’re in for. Unless it is obviously a very simple fix it is probably best to bring in a trusted professional to make certain the damage is contained and not indicative of a larger issue.
Perform a Cost/Benefit Analysis for Each Potential Scope of Work
Don’t get emotionally attached to a project. Said another way, don’t make the deal if it doesn’t make money. This may sound selfish, but it is important to remind yourself that while rental properties can be lucrative, they also come with a lot of risk. You need to be rewarded for your time and effort appropriately. Just because you love an old building’s “guts” or “charm” doesn’t mean it will make you money; in fact, investment properties can quickly turn into financial pits if you aren’t careful.
You must consider each scope of work suggested by your remodeler or contractor from a variety of angles. Some of these might include necessity of the fix, how urgent the problem is, how much the fix will cost, expected project duration, market demand, what similar homes in the area offer, the list goes on.
Ensuring the rental is safe and up to code so you can legally rent it is priority one, but it gets murkier from there. Forecasting if you can increase rent pricing for a given improvement (+ determining how long it will take for that investment to pay off) is a good place to start your analysis.
Keep in mind that deciding to delay a fix can be an excellent decision provided you have a plan of action in place and an approximate timeline of when that repair needs to happen.
Prioritize Scopes of Work Based on Your Criteria
Once you have a reasonable amount of information on each of the problems you need to address, it is time to prioritize your list. The more information you have, the easier this is, but don’t get overwhelmed with research and not make any decision at all!
Priorities should probably flow in the general order of making the property safe/up to code, removing any issues that are making lots of families not want to rent, and then upping the “curb appeal” so to speak so you can demand higher rent. After a property is deemed safe you need to ask yourself “What projects will add to and which ones will subtract from this home’s cash flow?”
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Avoid “Scope Creep” – Your Profitability Depends on It
A creeping scope can be one of the biggest killers to your property’s profit margin and often balloons the time the property spends off-market, thus not earning revenue. It is shockingly easy to end up performing a lot more work than was truly necessary because it starts with good intentions. Scope creep is where you start off with a given scope of work and then gradually add on bits and pieces as you progress through a project.
An example might go something like this: one light fixture in a bedroom is damaged and needs replacing. You pull the fixture and then notice the drywall ceiling could use some love, and as long as the drywall is coming out he should patch the bathroom wall as well.
Once the new light is in you don’t want mismatched lighting, so you need to replace the rest of the fixtures, too. Now that those six ceiling fixtures are done the brighter lights reveal some nicks in the base trim, so you decide to replace that. On second glance the floors are getting in rough shape… it might be time to get those freshened up. The list might never end!
In a perfect world, every property including rentals would be in pristine condition with beautiful flooring, cabinetry, appliances, fixtures, trim, and every other finish. It is natural to take pride in your properties and want them to look their best.
You can’t ever provide good housing at reasonable prices for your renters if you never make any money though – you will hurt yourself and your tenants if you do not discipline yourself and limit your scope of work to that which will earn you revenue long-term.
Build a Trusted Network of Professionals
Having a team you can rely on for any situation is crucial to getting your property back on the market as quickly as possible. The wider and more diverse your network becomes, the more prepared you will be to address any issue that comes up for a unit in your rental portfolio. Some good rules of thumb for growing your network are listed here:
- Trust, but verify. Have confidence in your professional(s) yet inspect every job they do for you, at least in the beginning of the relationship.
- Try out contractors/handymen/tradesmen/etc. on smaller tasks initially until they prove their skills to you. Don’t be afraid to ask about their experience with a given type of project.
- Don’t get caught unprepared and get forced into a decision on who to hire last minute. Constantly develop your network so you have a phone full of contacts you can call on for help.
- Don’t use the least expensive guy you run across – there is probably a good reason they are the cheapest. It is more expensive in the long run to have to repair/replace sub-par work, and often less reputable companies don’t have proper insurance which can be a liability nightmare.
- Build your network slowly. It is not easy to find well-rounded pros at a reasonable price. They are out there, however you can’t expect to assemble your team overnight.
- Make a habit of networking. Ask for referrals from good contractors for other tradesmen or find a good general contractor who can be a one-stop shop for any remodeling needs.
- Don’t turn a job into DIY purgatory. Doing it yourself sounds like a great way to save money but you should do what you’re good at and hire professionals for what you’re not. Even if you have some home improvement skills you should calculate your hourly rate and really see what kind of money you’re saving. You might be surprised at how expensive you turn out to be.
Most Cost-Effective Improvements to Increase Rental Income
I’ll leave you with a quick list of ideas that we have found to provide the best “bang for the buck” as far as commanding higher rents at an affordable price for having the work completed. These improvements offer a good cost-to-benefit ratio since they can help increase asking price as well as assist in getting a property rented out more quickly.
Basically they are the easily-replaceable finishes that people first notice when deciding whether or not to rent your property:
- Tear out old, dirty carpeting and install decent-looking vinyl tile or planks.
- Patch all drywall holes and defects.
- Properly prime and paint every room a neutral color like white or grey.
- Replace the base trim or give it a fresh coat of paint or stain.
- Install new light fixtures with high-efficiency bulbs.
- Replace grubby plumbing fixtures like shower heads and faucets.
- Have the place professionally cleaned before you begin showing it!
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