Budgeting Renos

[nickek]

Hey



It's been a little over half a year since purchasing my first property, after many months of hesitation; big thanks to Godfried Wasser for sticking by and providing excellent realtorship skills.



As with most work I get involved in, I like getting feedback and some sort of evaluation to improve my own performance.



Recently, after chatting with the tenant, I noticed one thing about the conversation that raised some flags: he didn't feel like he was "living" in a home, merely "renting" one out. And one that was overpriced.



I don't blame him. Although it's quite suitable for living, the <$1000 work I put in plus the appliances that look like they've been there since before Christ was born make it look like it was specifically designed to be rented out. I don't think this is good for keeping a long-term tenant.



How can I determine what is the appropriate amount of cash to put into a home, and what should be my main focus points for renovations to make my properties look like homes?

 

[fumbrunner]

Hard to say without knowing the property. How dated is it? Does it need new flooring, paint? I doubt new appliances would have an impact one way or another on the tenant.



One thing that you want to keep in mind is that this is a business. That's not to say that you should completely ignore any tenant's request for upgrades, but that you should keep it a strictly professional relationship. No room for friendships in this business. My two cents....

 

[nickek]

Absolutely, I never said I would invite tenants to strip clubs once a month

 

[Thomas Beyer]

[quote user=nickek]what should be my main focus points for renovations to make my properties look like homes?


Depends on the rent level .. look at some competing properties in the same neighborhood with similar rent levels.



Do not over-upgrade .. and look for longer-lasting stuff, say laminate flooring as opposed to carpet .. maybe 20% more expensive but lasts 100% longer.



Decent paint job, accent colours, decent carpet, decent white or black or silver appliances .. all that costs fairly little in relation to the property value, less than 3% or 4% perhaps.



In apartment buildings the CAP rate determines the value. So if you can raise rents $100/month doing some upgrades, how much should you spend on that ?



$100 / month is $1200 / year .. minus management fee and taxes .. say net $1000 .. and with an 8% CAP rate it woudl increase proprty value by $12,500 !



So spend maybe HALF that on renos. $5000 to maybe $6500 !!



Similar in a house: a new carpet + paint for a 1400 sq ft home is maybe $3000 - $4000 .. tops .. plus appliances .. say $2000 .. plus some kitchen and bathroom upgrades .. depending on existing qualities .. so maybe $10,000 tops .. but then it should rent for $200/month more than the ugly one.



Paint is choice 1 from a return/price point of view.. then flooring .. then baseboards/doors/door handles .. then appliances .. then bathrooms/kitchen cabinets



Old walls, brown doors or old ugly kitchen cabinet doors can be painted white and look a lot nicer for very little money. trim or accent colours make a good impression too !

 

[invst4profit]

As Thomas points out it depends on the return you can get from your investment. Decisions should be made strictly on a business level.

Concentrate on upgrades that are inexpensive but provide high impact such as paint.

Don't throw money at high quality products in a low quality unit unless it brings up the over all value of the entire property.

Also keep in mind life expectancy of a product. As an example laminate flooring will out last carpet and remain attractive much longer. You do not want to be replacing flooring for every new tenant.

Tenants generally have a low level of respect for a landlords property and as a result often do not adequately take care of carpets, walls, cabinets etc so be wise in your choices.

Income level appropriate is wise in choosing material to match your tenants and if renting to tenants on government assistance be particularly prudent in product selection/expenses.

 

[nickek]

Thanks for the responses. This breakdown to specifics was exactly what I was looking for.