Charlotte Property Management Weekly: Maybe You Shouldn’t Fix Up your Rental Home?

The “Golden Rule” was an excellent idea as soon as Jesus said it; our lives would be so much better if we followed it all the time. But it’s not such a smart philosophy to follow it with rental homes. Let me explain.




There are many well-intentioned investors who believe that the “Golden Rule” should apply to their rental properties. “Do unto others as you would have them do unto you.” Through the years, I’ve heard:



1. “I like granite countertops. I imagine that tenants would also like to have them in my $75K townhouse that rents for $550 monthly.

2. “Once the tenant moves out, get started on the new paint and carpet please. I would want everything spotless and new.”

3. “Should we include all utilities in the rental price?”



Americans don’t want average homes for themselves; they want distinguished trophy homes without any flaws. Unfortunately, trophy rental homes with bells and whistles don’t make money; average homes do. So the key is to keep your rental home average and undifferentiated? That doesn’t sound like good marketing, does it?



Don’t get me wrong, these would be very nice improvements that would make the rental move faster. My issue lies with 2 things:

1. The ROI

2. The way to effectively market the increased value in the internet age



The question should not be “Would the tenant like these improvements?” Of course they would! Who wouldn’t?



Rather, the questions should be:

“Will the tenant pay for these improvements with increased rent?

“Will the market allow us to raise rents to cover and profit from these expenses?

“Can we effectively communicate this increased value in our marketing?”



The first problem is the ROI. In short, if you pay $2K to install granite countertops, how much extra rent can you charge? The answer is between slim and none. And slim just left the building. The reason? If your home is priced out of the market, no one will go look at it. And if they don’t go look at it, they can’t see how awesome your improvements are. Pictures only go so far.



The second reason is that it is too hard to effectively communicate extra value in rental homes; attention spans are too short. People look for rental homes on the internet and are clicking between hundreds of them. The main things people are looking at are price, number of bedrooms and bathrooms, and the areas in which the homes are located in.



So as potential renters are clicking expediently through homes, they notice your home is listed at $1,500 and another similar rental is listed at $1,350. Guess which one they click on? Yes, the cheaper one.



"But I have electricity, lawn care and cable included! They would save money ultimately by taking my property instead of the one for $1,350!"  Yeah, that’s probably true. But to learn that, they need to read the house remarks thoroughly and be a math major (and also know the typical bills that utilities in your area run). That’s way too hard.



The “Golden Rule” worked because it was simple to figure out. To move your rental profitably, keep your rental pricing and improvements simple as well!