The other day I had a prospective buyer come through a duplex I had listed. The property is in very good shape. In fact, for a rental property that is not owner-occupied, it was outstanding compared to most I see.
And yet, the buyer told me he wanted to make it better still.
I asked what he wanted to do. When he explained he wanted to do things like reorient the kitchen counter, I asked why when it wouldn’t result in him being able to collect any more rent. He said he just wanted to make it nicer.
As a new investor, and sometimes, frankly, even as an experienced one, it can be difficult to remember we are not remodeling our personal homes but rather, running a business. A business should invest its resources in improvements and efficiencies that help it become more profitable.
So, when it comes to making cosmetic improvements in a rental property, the first question a landlord should ask themselves is “How much more will this get me in rent?’ The next question should be, “And if I divide the cost of the improvement by the amount it will cost to make it, how many years will it take to pay it off?”
For example, if an updated bath will result in $50 more a month in rent, and the updates cost $5000, then $5000/50=100 months or 8.3 years. At that point, it’s important to evaluate whether the length of time to be made “whole” is worth it to the property owner.
One of the easiest mistakes for a landlord to make (including myself) is to over-improve a property without the hope of getting a return. If you know that going in, but it’s what puts your soul at ease, go ahead. After all, it’s your money and your property.