Dec 10, 2019
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?