Advice on a rental

backinthesaddleMay 6, 2010

We have an offer in for a short sale condo. Actually two of them, but weâÂÂre planning (hoping?) that only one goes through. One is vacant and needs new flooring in the kitchen and bathroom before we rent. The paint is OK but itâÂÂs to the former ownerâÂÂs taste (light brown and cream) and not the most professional looking job. I like it, but some may not. The rest of the place is decent but not fancy and we should be able to fill it as-is for $50 less a month than the going rate. On the other hand, we could replace the kitchen counter, sink and faucet to potentially get $100 more. We can update the kitchen ourselves for less than $500 but would have to pay considerably more to have it painted.

Which do you think it more important, a fresh, neutral paint job or the kitchen? On the off chance we end up with both places we need to be prepared to do a little more to the other condo if the current renter doesnâÂÂt stay, and want to maximize our initial output. Both condos will be fully remodeled and re-sold in a few years but, for now, we'd like to have happy renters. By far, the kitchen would be more important to me than paint but I may be the minority.

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Perhaps I'm a little confused. You can update the kitchen yourself but not paint? IMHO, painting is easy. Time consuming, yes. But relatively easy.
If I absolutely had to chose, I would go with the kitchen. I think people can overlook paint easier than an older kitchen.
You state that you have offers in on two different properties. Couldn't you retract your offer if/when one comes back? While possible, the likelihood of them both coming back at the same time I imagine is pretty low. That's what I would do, anyway.

    Bookmark   May 6, 2010 at 9:50AM
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Time, interest and skills are the reason we'd pay someone else to paint. We could do a great job over a weekend on the kitchen, but the paint would end up looking no better than what it does now, except for being white. I'd almost rather give someone a break on rent, provide the paint and let them go to town with hot pink and lime green if that's their style.

To simplify it, let's say the going rate is $1000. We could easily get $950 by just replacing the flooring in the bathroom and kitchen. We could get $100 more than the going rate for a sort-of updated kitchen, which is a few hundred dollars and a weekend of our time. Painting is not our thing so we'd probably pay around $1000 to have it done in a timely and professional manner. If the current paint bothered the perfect tenant and THEY wanted to change it, we could set the rent at $1050 and still come out ahead because of the kitchen, unless my math is really off. Other upgrades like appliances and the furnace will be replaced with quality as they die so I'm just trying to consider first impressions for now.

It's not ideal that we end up with two places at once but both are perfect for us so we're not looking for an out. It would be kind of nice if we got out-bidded on one or the other, although we were going to get a second place anyway in a few months so we might as well get it over with now. The price is definitely right on both!

    Bookmark   May 6, 2010 at 11:45AM
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The updated kitchen is my vote.

    Bookmark   May 6, 2010 at 1:25PM
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Next question.

The kitchen currently has laminate flooring that is warped and needs to be replaced. We were going to do vinyl but I can get a great deal on cork tiles. The main motivation would be to see how it holds up before we make a final decision between hardwood and cork in OUR kitchen.

Do you think that would seem odd to the average renter?

    Bookmark   May 8, 2010 at 9:08AM
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I'd go with the paint although I'm not a big fan of white for a rental either.

And, in my past experience, I don't think you're going to get that increase in rent even with the kitchen updates. Do you have specific experience in that market or comps to lead you to believe you'll hit that number?

My thinking is that you seem to view it as a rental as a placeholder till the market picks up again to sell it. In that case, I'm looking at it how much I can get out of it when I sell the place, not when I rent the place.

If you upgrade the kitchen now, the tenants are probably going to be rough with it. In a few years, it won't have the same brand new kitchen feel buyers love. I'd rather wait to upgrade the kitchen when I sell it because I could market it at that point as new kitchen upgrades. If you make the changes now to the kitchen and try to sell it in a few years, you've lost the oppurtunity to trumpet about all those new upgrades because they'd no longer be new and might look a bit rougher from the tenants using them.

    Bookmark   May 23, 2010 at 2:04AM
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Being a long-term renter, I'd vote for paint. As much as a renter who likes to cook (like me) would love an updated kitchen, truthfully I wouldn't necessarily pay much more for it. In fact, I know I wouldn't. Renters look for # of rooms, location and price.

If you are going to flip it eventually, I agree with marvelousmarvin that I wouldn't upgrade the kitchen until just before selling it.

    Bookmark   May 23, 2010 at 2:59PM
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Mostly you get the type of renters your property shows like.
I say mostly because nothing is written in stone in the rental game.

do you have other rentals? What is your experience with them re: wants/needs/desires? Yours and tenants. Perhaps a local property management firm could offer you some pointers.

We are long past the stage of renting run down mobiles, condos, etc. and it took a good long while to get here from there. The one thing I'd do is both...update the flooring/counters/etc. with bullet proof materials (cork is not bullet proof) and put on a quality paint job in nice neutrals.

Then I'd look for a tenant who would appreciate a cared for and kept up place to live. At market rates, if not a bit more. Discounts for shabby are, ultimately, a lose/lose proposition.

    Bookmark   May 24, 2010 at 12:53AM
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Personally, if I'm looking for quality long-term tenant, then I actually discount it a bit from market price even if the place is glammed up. That lower price will bring in more qualified options, and lets you cherry pick the best possible one. Usually, if somebody is willing to pay beyond market price, there's a reason why they're willing to do that...

    Bookmark   May 24, 2010 at 4:31AM
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I've always thought some of these same things. Update a place to get better quality renters - not necessarily more money. Strange that itt works that way. I don't necessarily agree not to update. $500 is not a big deal and if it gets you better renters - then it is worth it and the kitchen will still be better in a few years than it is now.

Also - maybe you overestimate how much a painter will cost? Mine expects about $200 a day and I bet your job is 2 days (or less).

    Bookmark   May 25, 2010 at 7:42AM
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Thanks for the replies. I'll respond when I get a chance but I have a pressing question about the other unit right now.

Sooooâ¦. The second bank involved in the short sale came back on Friday and said they wouldn't accept less than $X, which was $10,000 more than we offered. We came up a little and they denied that, too. After a lot of thought, we decided to go for it because it's currently rented, the people really want to stay and we can close on Wednesday. Yes, tomorrow! We are supposed to get the condo and HOA docs to review today, but we need to do some kind of inspection tonight.

My husband is capable of that and the tenants are making of a list of every issue they've ever had, but can you give me the areas he should focus on? The tenants were nice enough to let us in at the only time my husband is available (10:00 PM) so we don't want to inconvenience them more than we have to. I doubt there's any room for negotiation so we're looking for deal breakers, not leaky faucets and sliding doors that don't open smoothly. It's a mid story unit and there's no roof involved.

    Bookmark   May 25, 2010 at 9:44AM
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Look for ventilation issues, mold, flaking paint, patch jobs, etc. These are certainly in the bathroom(s) but also under sinks, in far corners of closets (especially if they are on outer walls. Under windows, etc. Check the HOA docs carefully for any water remediation work, roofing, flashing, rooof vents, windows, etc. Look on the wall behind any large pieces of furniture where air circulation is slowed up.

I carry white gloves with me and "wipe" each undersink trap and waste plumbing. Look for blackish, greenish ooze type stuff.

Fill anything that can be filled and pull all the plugs at once and see how water drains, try and set up water hammer too. I plug shower stalls and fill the pan even.

Next is counters and ideally want solid surface counters and quality laminate on floors. If there is carpet ask if you can do a small destructive test by pulling a corner away from the tack strips. Pull enough (and try and do this on an outside corner as well) to see the padding and subfloor.

Really check in suite laundry and hot water tanks. Look for signs of leakage, old or new. Look for catch trays and drains and make sure any drains are open and flowing.

Use your nose. Carry a high powered flashlight and shine it along walls and look along them for evidence of patching, especially along baseboards.

Paint, new carpet, even a new appliance package are not deal breakers to me, moisture and its attendant issues are.

If they will let you, pop a baseboard off along an outside wall and cut an inspection slot to see what is what. The baseboard covers it back up.

Buy a plug tester, they tell you if your grounds are correct. Nothing you can do but if all the plugs light up wrong you can be almost assured you have electrical issues somewhere else. If there is an electrical box in unit check to see that over sized breakers are not in place. That is a red light to me. A fuse box is a red light to me.

Turn on the oven, the microwave and drop the toaster at the same time. While those draw, go into the bathroom and plug in a hair dryer.

Gosh, this could go on for pages. Rushing into something leaves you open for issues. I guess its only money.

Renters want clean, odour free, current and respectable...they want to be able to invite Mom over. No one wants a ten year old balky oven with a rattle fridge and being not able to run the dryer while you make dinner. Nor do they want musty smells when the heat comes on.

If these are your first, its not a rental unit, its a business. Have fun, you will learn but try and keep the learning less expensive than a college degree, eh?

    Bookmark   May 25, 2010 at 6:38PM
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I wrote: "Have fun, you will learn but try and keep the learning less expensive than a college degree, eh?"

I'm thinking that may sound snarky...its not meant to be. I spent a collage degree and more learning the business.

Each unit has to be the best it can be, to attract the best tenants at the best rate possible. each unit has to be profitable on its own. If you start out lowering your rates to make up for a less than desirable unit you will descend into money pit time and that can be a gong show.

Do not factor in appreciation when you are doing up the cash flow forecasts and the budgets, P&L's etc.

The rent makes it a profit center or it doesn't. Walk if it doesn't. Let someone else have the headache.

    Bookmark   May 25, 2010 at 9:17PM
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Danger Will Robinson! Danger! Danger!

Do not buy a HOA condo for a rental- that's possibly the worst case scenario.

Carefully read those HOA documents, and then re-read them several times. Sometimes, they have restrictions on rentals that just kill it from a rental- investment property perspective.

Even if they don't, they usually have onerous restrictions that make it difficult to rent it out with conditions that drives tenants out. Read the covenants, and think to yourself, can you trust a tenant to follow all those rules.

Also, check out the property management company that controls the complex. Nobody ever thinks about that, but that is one of the most important and significant things to look at when thinking about buying a condo or townhouse. In the wrong hands, the PM company can kill it as a rental property.

    Bookmark   May 26, 2010 at 3:17AM
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I don't think that I've ever heard of a condo without an HOA.

    Bookmark   May 26, 2010 at 12:11PM
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I didn't take that as snarky, Metaxa. Thanks for all the info. My husband got a chance to look at it 5 minutes before leaving and did what he thought applied. It's a brick building with concrete floors so he didn't rip up carpet or tear out base boards but he did look around all the windows and patio door for any sign of water damage. This is an established, well-built 35 year old complex and the unit is in good shape, other than being outdated inside.

The only issues he found were the electrical panel, which we already knew about, needing to be upgraded. Our house is around the same age and we've already done it here. The hot and cold water in the bathroom sink were reversed and the washing machine died a couple days ago but the furnace looks to be about 10 years old and all the original (rose colored) tile is in good shape. Same with the original cabinets under the sinks.

Tenants had no complaints besides the broken washer and reversed H/C water in the bathroom. They've been there long enough to use the heater, AC and gets lots of rain so we'll have to trust their judgment in some of this.

Marvin, ALL houses in this area are in the same HOA so it's just a fact of life. It mostly gives you access to the pools, community centers, parks, etc. but they wouldn't be nit picking about yard maintenance and house colors in this case. The condo fees cover things like mowing, trash removal, snow removal and exterior maintenance. We still haven't seen those so closing might have to be put off until we have a chance to read.

    Bookmark   May 26, 2010 at 1:11PM
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I can't comment on the HOA part...we do it differently here.

But brick, concrete, etc. sounds good, way better than stick built. My rule is if it needs an elevator, it had best be a commercial built building, not wood frame.

Quick story, we bought a duplex with a long term renter in side A, empty on side B. As we began renos on side B the renter (retired teacher) took an interest. We listened and did the types of things she talked about as well as our usual bullet proofing. I took her appliance shopping with me and then to lunch. What she didn't know was we bought her a convection oven, self clean because she liked to bake and found cleaning the oven a chore as she aged.

When we were ready for paint, I knew her likes, we painted it for her. Moved her into side B, her colours, her oven, all new appliances, set up the way she had fantasized her unit could be. She didn't know this was happening, same rent, we just wanted to reno her side as well.

You would have thought she had won the lottery. That was almost 10 years ago, her unit shows as new today and I'm certain she will live out her days in it. The up-charge from stock oven/range to hers was a couple of hundred bucks, rent was (back then) around $800, its now just over $1,100 per unit.

I never discounted her rent but increases have been slower for her, she pays just under $900.

(We have Residential Tenancy legislation that defines rent increases, not quite rent control but you'd best know what you are doing)

Treat tenants right and you will do well.

Hope all goes well with your adventure.

    Bookmark   May 26, 2010 at 6:33PM
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metaxa, I think you get lots of good karma points for that.

    Bookmark   May 26, 2010 at 10:02PM
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