Wow! That's what I want prospective Tenants saying (to themselves or out loud) when they first see pictures of one of my rental homes. And again even more so when they walk in the door for the first time for a showing. I want them to have an intense desire to live in this home, so much so that after seeing it, they'd still want it even at $100/mo more than the advertised rent.
Welcome to Episode #38 - Rental Rehabs… How Nice Is Too Nice? This will be Part 1 of a multi-part episode.
So... Hardwood Flooring? Granite Counters? Stainless Steel Appliances? If you have Rental Properties, do they have these features? Or if you don't yet have any, would you want them to have these features? Or do you think these are just unnecessary upgrade overkill for a rental home?
Do you think or fear your Hardwood Floors will just get scratched by the Tenants, their Guests or disallowed pets that somehow are still present anyway? That they'll crack or stain your Granite Counters? And dent your Stainless Steel Appliances?
Now I'm certainly not going to suggest that these things can't or won't happen to your upgraded finishes. That'll depend largely on your Tenant Screening and Tenant Onboarding process - as well, as how diligent you are about on-going inspections.
But what are your thoughts about the prospect of earning higher rents, lowering vacancy and getting generally better tenants (who cause fewer problems) - by using upgraded finishes to make your rental homes more desirable?
So most of my rental properties are in the realm of being Class B. But I have one Duplex at a location that I would consider to be Class C, as it sits on a street of all Duplex Rentals - but they're generally well-kept and clean, plus its in the path of progress, with $400,000 homes literally right around the corner (you could throw a rock and hit one).
Now in all my properties I tend to install Luxury Vinyl Plank (LVP) Flooring on the lower level, which looks great and it's waterproof. This allows me to even install it at wet locations like the kitchens and baths - whereas I previously installed LVT (Luxury Vinyl Tile) at wet locations, but the LVP works and looks better.
I don't have any rental homes currently with real Hardwood Flooring, as I do fear that they'll get scratched and dented - however, I will eventually try it in a Class A property. Right now I'm deciding if I want to sell or rent my current home, which has Hardwoods throughout.
Now for upper level flooring, I've done both LVP and LVT from property to property, and typically carpet in the bedrooms - although I'm considering going with LVP in the bedrooms also. That increases the initial cost a bit, but LVP tends to stand up well to Tenants, and therefore I expect it will last through multiple Tenant turnovers. Whereas, since I have pretty good Tenant retention, by the time I have a turnover, it's likely the carpet will need to be replaced again.
During a rehab I tend to replace doors that show any damage beyond what can be easily repaired, painted over or otherwise hidden. I've replaced several sliding glass doors and I tend to replace them with the ones having internal blinds. That eliminates the need for separate Vertical Blinds that just get damaged by kids and pets.
And as for blinds... I'm not putting in those 1" plastic mini-blinds that you see in most Rental Properties. I put in 2" faux wood (meaning fake wood) plantation blinds. They're not much more expensive, but look great in comparison and are pretty durable.
Also, in my rehabs I typically replace door knobs, faucets, light fixtures - and pretty much everything else that's available in brushed nickel finish. And the brushed nickel light fixtures I choose are most often of the higher quality and design. I want them to be stylish and have that WOW factor - especially the ones over the bathroom vanities, in the dining room and kitchen.
And of the kitchen, it needs to have nice cabinets with brushed nickel handles (the vertical bar type). I've put in new cabinets in a few rental units, but for many I just resurface the cabinets to white or gray. Appliances are of course Stainless Steel - and not the ones when most of the appliance is black, with just a section or two of Stainless Steel. I most often opt for upgraded appliances with a nicer than average kitchen faucet. But for all of this, I'm still asking - "How Nice Is Too Nice?"
So that is the question... How nice is too nice when rehabbing a rental property? What upgrades and improvements are just a waste of time and money? Do you really need Granite Counters in a rental? Or are the "solid surface" counters or the cheaper counters that look a lot like Granite just fine?
Do you really need Stainless Steel appliances in your rental properties, or are you just as good going with basic white? Does it matter if your kitchen faucet is $50, $100 or $150? Certainly, one of those $250 faucets would be far too nice - a waste of money. If not, it certainly seems like a foolish waste of $100 if you're just as good spending $50 as $150. Likewise, does it matter if you have upgraded cabinet handles? Upgraded light fixtures? Upgraded flooring? Upgraded Blinds - and on...
Honestly - I have no idea! Meaning, I can't prove that the additional time and money spent on these upgraded finishes actually pays for itself in some quantifiable way. But anecdotally, it is my feeling that these upgrades make my properties more desirable - and as a result, I may get a better tenant. A better tenant who thereby causes fewer (if any) problems, because they have a house that they're proud to call home.
But no, I can't prove it. In fact, I've got three 2BR Townhouses in the same community with various levels of upgrades (one even having white appliances and formica counters). And I get about the same rent for each of them. So that kind of blows my theory out of the water.
So from this and various anecdotal examples, I'm left to conclude the answer to the question of "How Nice Is Too Nice" - is that anything over a base level of upgrades and improvements is a complete waste of money - unless it was needed anyway. So in my rehabs, I just address what was needed - and I do so with somewhat nicer items in the process.
I certainly want quality rental homes with nice upgrades and improvements to the property. I want the person to say (or at least think) "WOW" - when they walk in the door for the first time, or when they first see the pictures. But I see no need to spend money beyond what is necessary to achieve that goal.
In other words, I'm seeking a result that is well above average, but well below excessive - which is the point at which you get no additional "bang" for the buck. So "Too Nice" is spending $250 on a rental kitchen faucet, when a $150 faucet (or even one for $100) would have been fine (and still get that same "WOW" response).
So when I put in new fans, they are $50 each (not $100 or $150) - but they LOOK like they cost $150. Just like the $100 kitchen faucet I use looks like it costs far more than it really does. My LVP and LVT flooring comes out looking great - and is far cheaper and more durable than real Hardwood.
So I'm able to upgrade bath vanities, bath faucets, bathroom fixtures, flooring and everything - but not break the bank in doing so. I even install upgraded shower heads. Maybe great showers increase tenant retention - I don't know. But that doesn't mean you need to alter plumbing to put in an overhead waterfall shower-head - that would be "Too Nice". But not nice enough is just a plain basic shower head. Spend an extra $5 or $10 and get something nicer that your tenant will use everyday! And we can debate on if showers should be tiled.
I try to get the best appearance and durability results I can - for the lowest price. I'll talk more about durability in next week's episode. I spend more on certain items, but I try to save money wherever I can. For example, I'll spent around $1,800 on appliances (the frig, stove, microwave and dishwasher) - but sometimes I'm able to get the same for a few hundred dollars less.
I consider Stainless Steel Appliances to be my minimum (when the existing appliances need to be replaced anyway), along with LVP and LVT flooring. New or resurfaced kitchen cabinets and most often granite counters. But you must be careful, because just those few things can be $10,000 right there - and that doesn't even get into all the other stuff, which can easily be another $5,000. So is a $15K to $20K rehab too much for the average rental property?
Maybe... It really all depends on the numbers. What will the place rent for? And in this process, are you replacing anything that is really just fine as-is? Like I said, even thought Stainless Steel Appliances are my minimum - the rental with white appliances that I mentioned before had them present already (NEW) when I bought it. So I certainly wasn't going to replace brand new appliances just because they were white, instead of Stainless Steel.
So "Too Nice" in this context, is anything that is more than or beyond what you choose to establish as the minimum for your target class of rental property and ideal tenant. If your target doesn't want, need or value the upgrade - then it's a waste of money.
So if you handle this question of "How Nice Is Too Nice" as I've done - it just requires you to pick certain items that you use in every property when the existing related item needs to be replaced. I use the same kitchen faucet in almost every property. The same toilet. Same light fixtures. The same vanities. It really does get to the point that if you've seen one of my properties, you've seen them all. And in each case I pick slight nicer items, but where the cost for the improvement is not much more than the lessor option of the same item. And I'll talk about the other side of this equation next week - which is durability.
Rehabbing distressed properties into rentals is a balancing act... You must watch your budget, because every dollar spent on the rehab lowers your ROI - and depending on how you choose to fund your rehabs, it can also lower your cash-flow (at least initially). And you want the resulting property to be nice, plus you also want everything to be durable - so that you're not likely having to replace everything all over again at each tenant turn.
Finding that right balance between price / cost, appearance and durability is critical to a successful outcome. And if you're like me, you want prospective tenants to think "WOW" (or even say it out-loud) - when they first see pictures or have a tour of your rental properties.
In this episode of the [... and Landlord!] Rental Real Estate Investing Podcast, I relate some of my thoughts on achieving this outcome and balance - so I ask the question "How Nice Is Too Nice?"
Here I relate that I cannot prove it, but anecdotally, I feel that the quality of my rental rehabs both make my properties more desirable (I definitely get that "WOW" effect); and results in an increased durability. But it does come at the price of an increased rehab cost. I put a bit extra into making my properties really nice (but "How Nice Is Too Nice?") - so at the same time, I must be careful not to take it too far.
Because at a certain point, things are durable enough and look good enough - so to go further or spend more gains little to nothing in return from increased rent or reduced vacancy. While I feel you can certainly attract a better tenant who may stay longer if you put a little extra into the rehab (like upgrading to Stainless Steel Appliances, LVP Flooring, Granite Counters, etc...) - creating a home they really love and have pride of residency... It has a limit beyond which you get drastically diminishing returns. And since measuring those returns are almost purely anecdotal anyway - you really must be careful when increasing rehab expenses to make a property nice. You can quickly end up with a property that is far nicer than it needs to be to get the same tenant at the same rent you'd have gotten anyway with a lower cost rehab to rental.
So where to draw the line? How nice is too nice?