There are two schools of thought when it comes to rental properties. Some landlords want to do the minimum to get the property rent ready. This typically involves fixing anything that’s broken and maybe some cosmetic work like paint and carpet.
Other landlords will do a more extensive rehab when they purchase a rental. This may involve replacing the mechanicals like the HVAC unit, water heater, updating plumbing and electric, and replacing the roof. They will also typically do more extensive cosmetic work in the house like replacing the appliances, cabinets, countertops, light fixtures, etc.
There is no right way to do this. I have interviewed many investors on the Rental Income Podcast that have been successful doing either strategy.
However, I think that doing the extensive rehab up front is going to make your life easier and your rental more profitable, because you will be dealing with less maintenance calls and you will ultimately have lower costs to manage your property.
I have done it both ways. I have done the minimum to get the property ready to rent and a total gut rehabs. After doing it both ways, I much prefer to do a full rehab on a property than doing the minimum. Below are some real world numbers from 2 of my rentals to show you why:
Totally Rehabbed with new roof, new HVAC, new windows, new water heater, new kitchen cabinets and counters, new tub and vanity. Everything in this property was replaced at a cost of about $20,000.
In the two years I have owned this property, I have had zero repair calls, and I have had zero expenses on this property. It’s been a great investment. I have a tenant that has pride in the house and there is literally nothing to manage with this property. (But, I do have a property manager).
This property produces stable rental income every month.
I didn’t do any work to this property when I bought it. The house had been recently painted and had a few updates that were recently completed. It was in decent condition, but nothing like the condition of property number one.
In the last two years I have spent about $3,000 on repairs. Nothing major, but a lot of small things. It also wasn’t $3,000 all at once, but every month or so there is a minor expense. This property requires a lot more management and contact with the tenant.
I also have a property manager for this property, and have never met the tenants. But, I’m sure they are inconvenienced every time they need to report an issue to the manager, and have to deal with a repair person coming to their home.
The income on this property is still good, but it’s not as steady because often there is a deduction from my net rent check from my property manager for a repair.
Everything in a rental has a finite lifespan and is going to be replaced eventually. The question that you need to ask yourself as a landlord is do you want to spend the money now or later.
I would rather spend the money now for three reasons:
1.) Having a nicer property attracts a better tenant. My tenants want to stay with me because they love the house. This also reduces my turnover costs.
2.) I Can get the work done cheaper if I do it upfront. I have time to get multiple bids from contractors. When a hot water heater needs to be replaced, you don’t always have time to get multiple bids and will end up paying more.
3.) It makes my (and my property manager’s) life easier. We are dealing with less issues and have less tenant contact.
4.) It leads to more stable, consistent, cash flow because my expenses are lower.
What Do You Think? Is It Better To Do The Rehab Up Front, or When Just Fix Things When They Break? Let Me Know In The Comments Below
P.s. If you want to learn more about buying a rental property, here are a few resources:
- How A New Investor Got His First Deal (podcast)
- Buying Her First Rental (podcast)
- 5 Steps To Buy Your First Rental (ebook)
You can also get tips to buy your first rental sent to your email – just add your email to the form below!