Residential Rental Property ROI Improvements

RESIDENTIAL RENTAL PROPERTY

A House … Not a Home

First in a Series of Two Articles

The title of this article is not meant to be cynical, uncaring or insensitive to tenants. It is to introduce a mindset … “Don’t fall in love with your investment.” You can and should respect as well as protect your asset without feelings of emotional attachment. The point is that your residential rental property should not be afforded the same stringent standards that you likely apply to your own home. Likewise, tenants view the residence as temporary and will not treat the rental unit with the same quality of care they would exhibit toward their own property. Very few renters will notice or appreciate “above and beyond” efforts on your part to improve the rental unit. Their concern is a functional, comfortable living space that is consistent with the rent they pay. So as you approach the need for renovations, upgrades or improvements be critical … but remain objective. Your concerns should reflect the above tenant expectations with an eye to your expenses, potential return on investment (ROI) and tax considerations. Across the board, inside and out, your objective is to ensure that your rental unit (house or apartment) is appealing in appearance, functional, comfortable and safe. Seldom will that mean a major overhaul. That’s where your critical eye comes into play. Here are some tips on doing what you must without going overboard in refurbishing your property.

Never a Second Chance at a First Impression – The View from Curbside While not the most important long-term aspect in prospective tenants’ minds, the initial view of the property does create an anticipation of what to expect. The overall impression must be an exterior view that looks cared for and regularly maintained. Certainly, keep on top of performing the following:

Manicure the lawn
Prune trees and shrubs
Flowers or other colorful plants add a nice visual touch
Repair walkways, outside lighting, fences and gates
Touch up paint on surfaces that need it.

Again, no need to over-spend on landscaping. Just make it visually pleasing, clean and safe. Finally, if your property is multi-family, pay the same attention to the lobby, common areas and exercise facilities. All are part of the initial vision your property projects.

A Critical and Objective Appraisal of the Interior Of course, you must be mindful of the prospective tenant’s mantra, “Can I see myself living here?” At the same time, there is no expectation of “over-the-top” amenities … other than what will be anticipated commensurate with the rent. So here’s a checklist of a walk-through to identify gaps and make rational decisions about what and how to deal with solutions.

Clean and repair before replacing:

Whether or not the rental unit seems to need it, clean it thoroughly. Often, you will find that the visual problems were just a grubby, dusty look or slightly soiled carpet areas that can be resolved with soap and water plus a bit of elbow grease. The results will also help bring to light real issues that must be addressed through repair or replacement.

Floor Coverings:

Often carpeting is replaced by landlords on a specific schedule, e.g. every so-many years. Carpet wear and tear is less a function of time and more a function of its treatment by tenants, their children, guests and pets. So before an expensive installation of new carpets, carefully consider the value of a professional cleaning that will bring the carpets up to acceptable livability at a fraction of the cost. If replacement of carpeting is in order, consider replacing carpeting with vinyl, tile or wood (or wood-like) flooring and even mixing plank flooring with carpeting in different rooms. There may be special appeal to prospective tenants plus immediate cost savings along with extended life of the materials.

Painting:

Unless the previous occupants were heavy smokers or otherwise careless in their cooking habits, it is unlikely that ceilings will need to be repainted frequently. Walls are another matter due to their proximity to be scuffed by furniture, children’s fingerprints (artwork?!) and other minor discolorations. Here’s an inexpensive first line of defense. Use a Magic Eraser in your initial attempt to tidy things up. Failing that, painting may be the ultimate answer, especially if its been 3-5 years since it was last painted. There are several things to consider in choosing your paint colors. Lucas Hall wrote of amazing paint colors for your rental property. Among his recommendations:

Ensure your rental property will appeal to the largest population of potential tenants.
Stick with neutral colors.
It doesn’t really matter what your color preference is, as long as the color you choose makes a potential tenant want to sign a lease

Plumbing

Few things can be more annoying than a toilet that continues to run after flushing or the drip-drip-drip of a faulty faucet. Replace or repair the leaky culprits!

Lighting

At the very least, be sure that all light bulbs are working. Also, sometimes a minor investment in upgraded lighting units will change the ambience of a room making it more warm and attractive to prospective tenants. Consider LED upgrades to limit the need to change light bulbs frequently plus lower electric bills.

Fixtures:

Check to see if replacements are in order for inoperative smoke detectors, doorknobs, tarnished cabinet hardware and damaged blinds.

Appliances:

Ensure that all installed appliances included in the rent are in good working order. That will include kitchen units: stove, oven, microwave, dishwasher and refrigerator/freezer.

HVAC

Have your heating and air conditioning units professionally inspected for leaks, electrical functions, thermostats, heat pumps and compressors.

Miscellaneous:

Roof repairs, window replacement, cracked floor tiles and replacing rotted floor boards or damaged stairs are all items to be addressed.

Summary The above activities are your survey of the rental unit. Your next step is to evaluate any deficiencies as to the need for repair or replacement. Caution: We started this article with the warning, “Don’t fall in love with your investment.” You can and should respect as well as protect your asset without feelings of emotional attachment. That said make your maintenance decisions judiciously based on what is currently necessary to make your property attractive, safe and rentable. Be mindful of the must-dos and avoid the nice-to-dos until tackling them will be justified by your investment expense and expected ROI. Coming Attractions In the next issue of the Residential Investor Connection we’ll examine the differences between Improvements vs. Repairs, the “wow” factor (and ROI) of upgrades to kitchens and bathrooms plus short-term and long-term tax implications.

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