What Vacant Rental Home Fix-Ups Should a Landlord Do (or Not Do)?

 

My wife and I were looking at renovating our primary bathroom so we had someone come in and give us a quote.  We weren’t looking for anything overly-extravagant; I’d say it was much more on the practical side of replacing some older bathroom pieces.  I thought the proposed work was relatively basic and was more concerned about the inconvenience than the cost.  Then the quote came in around $50K.

 

To me, the quote was a lot; $50K for a practical bathroom renovation is significant.  For that, I’m thinking heated tiles, a sweet hot tub, and a roomy, rainwater shower equipped with a state-of-the-art entertainment center.

 

If we take this out of the “splurge on myself” category (where things like this are sometimes justified on a personal residence- note: not in this case…) and put it into the “rental home investment” category where the numbers need to make actual sense, we could do a quick calculation of making this potential investment:

 

With a renovated primary bathroom, we’ll say the rent can go up an additional $500.00/month; that seems high to me, but we’ll go with it.  At $6K extra rent coming in annually ($500 for 12 months), we’re looking at the payoff time for a $50K bathroom investment to be roughly 8 years (8 years multiplied by $6K = $48K).  That’s a long payoff period, especially if a destructive tenant moves in and degrades it quickly.

 

This type of repair figure, post-COVID, is not crazy though.  The question then is how much home fix-up is a justifiable expense for a landlord?   That’s a tough question as it is really an answer that has to be made on a case-by-case basis.

 

But philosophically, my answer would be to spend as little as possible with several caveats if the rental home is a long-term hold:

 

1. Don’t skimp on preventative maintenance
2. All home systems need to be functioning per the lease agreement
3. The home needs to be desirable to rent near the market rental rate (no major red flags aesthetically)
4. The home needs to be very clean and pest-free

 

This is much more of an art than a science.  The issue is that when new things are installed in an older house, it makes the older things look even older.  For example, if one room gets fresh paint, the rest of the unpainted rooms scratches look even worse.  Replacing one appliance can make the other ones look 10 years older.  What not to renovate can be more important than what to renovate.

 

And different aesthetic issues are going to make the home unrentable to certain people; it helps to be a bit thick-skinned if some potential tenants are critical of certain aspects of the home.  New construction and/or complete renovations appeal to everyone!  But most owners and tenants are either not willing or able to pay for that.

 

I want to be clear- a home is always easier to rent and will rent at a higher rate if everything is renovated.  If the financials can be made to work, this is the best option by far.  It is really nice to offer rental homes that have the best of everything!  It makes a property manager’s job much easier!

 

However, for others, $50K of renovations may not be a viable investment strategy; the numbers are usually tough to justify on a standard rental home.  Smart landlords learn to be judicious in what they choose to fix-up (or do not).

 

Happy Landlording!