When I buy houses I want a great deal and many times a great deal involves houses that need a lot of work. I buy houses at least 20 percent below market value, and when they need work I must have a plan to repair them that will bring me the biggest return on my money. I spend a lot of money when I repair investment property, and it is very important what I do and don’t repair. I fix and flip 10 to 15 homes a year and I also have 16 long-term rental properties. I have a completely different strategy to repair investment property depending on if it is a fix and flip or rental property.
Keeping repair costs as low as possible, while still making homes look great is a key to my long-term rental strategy. I detail my strategy in my complete guide to purchasing long-term rental properties. I include articles on buying, selling, renting and detailed figures on my properties.
Repair strategy on my long-term rental properties
With my long-term rentals, I tend to make fewer repairs than I do on fix and flips. I still make the rental property look very nice and make sure it is safe, but I won’t do as many repairs as I would if I were to sell the home. The reason I don’t fix as much on a rental property is because renters aren’t nearly as picky as buyers. Most renters do not think of a house they rent as their property, and they aren’t as concerned with the age of the mechanical systems or the finish details because it is not their house. If something breaks, the tenant knows the landlord will fix it, or at least should fix it. I have found renters to be very nonchalant about light fixtures and paint color, where buyers are very picky about these items. In rental property number 7 I left brass fixtures in the home as an experiment to see if it would be hard to rent (we usually put in oil rubbed bronze). It rented right away and the renters did not even seem to notice the fixtures.
How I decide what to repair on my fix and flips
In a fix and flip we will always replace the fixtures and make sure all the little things are done because buyers want their new home to be perfect. The buyers won’t have a landlord to fix anything, they will have to do the repairs themselves or pay someone if something breaks. A buyer will also most likely hire an inspector who will go through the entire house. That inspector will find most items wrong with the home and buyers will often get scared off by an inspection that finds many things wrong. We try to have as few items mentioned on the inspection as possible. I know many fix and flippers who have an inspection done on their homes after they do repairs but before they list the home. This allows them to make repairs the inspector finds before listing the home and to advertise the home as pre-inspected.
Using different paint techniques for fix and flips versus rental properties
Paint color can make a huge difference in how a house feels. Dark paint can make a house feel small, while white paint can make a home feel stark and boring. Many people love to paint rooms different colors to show their style and personality. The problem is, everyone has a different style and personality. It is impossible to please everyone, so a nice neutral color is the best choice. We use beige paint in all our rentals and flips. If the home has white trim we use a color from Kwal Paint called Sawyer’s Fence, for oak trim we use a color called Millet. Paint colors definitely look different in different houses due to the trim colors and carpet colors. If you are trying out new colors, use paint samples on the wall to see how they look before you paint the house.
We sold a flip last week that had brand new paint throughout the entire house provided by my friends at http://www.cornwallbuilder.co.uk. At the closing the buyers informed me the first thing they were going to do was re-paint almost the entire house. It may seem like a waste when all the new paint is getting painted over, but the buyers let me know the paint we picked looked really good. Those particular buyers liked color and a lot of it! We could have just as easily had buyers that would have kept the paint we used for five years. We still sold the house by choosing a neutral color, if we would have tried to pick trendy colors in multiple rooms, it could have thrown off the feel of the house and scared buyers away. Here is a great article on how much it costs to sell a house.
More design choices when repairing a fix and flip or rental property
Just like paint, if you want to sell your house quickly and for a lot of money, other designs should be neutral as well. Carpet Color can range from dark to light, but once again too dark of a color makes a house feel dark and small. If the carpet is too light, people worry about stains and wear and tear showing. We always put new carpet in or re-finish hardwood floors on all of our houses whether they are fix and flips or long-term holds.
For light fixtures and plumbing fixtures, the in-style is dark. We have put in brushed bronze fixtures for a few years in all of our properties. Brushed bronze is bronze fixture covered in black paint. After a bit of use the black wears off to show the bronze color, which I think is very cool. My wife recently told me nickel fixtures may be coming back as the “in-style” again. I still prefer the dark fixtures with light paint because I think it creates a nice contrast. Nickel fixtures are not bad either if you want to save a little money, but I would stay away from brass. Brass fixtures really date a home and can take away from the other new features. The cost to replace all fixtures in a home can add up quickly as it can easily cost $700 to $1,200 in just materials for basic fixtures from a box store. We will usually replace fixtures on all our flips, but may keep the current fixtures if they are in decent shape on our rentals.
Updating and upgrading a rental property or fix and flip
When you repair investment property, the biggest decision can be how much to update and upgrade. Many of the houses I buy are very dated and that is why I get a great deal on them. The most expensive repair on a home is usually replacing kitchen and baths. I try to avoid replacing kitchens if possible, especially in my rentals. Bathrooms I also like to avoid replacing, because of the price to replace tubs, sinks, toilets and the labor. I do make sure all the mechanicals are working well because I do not want a plumbing leak destroying all the work I just completed on a flip or rental.
For more information on how to buy the best rentals which will make the most money, check out my book: Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely. The book is 374 pages long, comes in paperback or as an eBook and is an Amazon best seller.
On my flips I tend to replace kitchens more often because I will be getting that money back right away when I sell the home. On a rental property, a brand new kitchen might help it rent for slightly more, but it will take years to make that investment back. I try my hardest to save the kitchens in my rental properties and keep costs down. It is tough to know when to replace a kitchen on a fix and flip, but kitchens do make a huge difference in the feel of a home. There are so many components; cabinets, counters, appliances and layout that affect the feel. One or all the components can be replaced and be enough to sell the home, but it’s tough figuring just how far to go.
We always put in stainless steel appliances in our kitchens. They aren’t that much more expensive and most buyers love them, which helps you sell your home quicker. We almost always replace the counter tops as well. Usually the counters are pretty beat up and you can put in nice laminate counters that look awesome fairly inexpensively. Depending on the price of the home, we may put in granite counters to spice things up. Nice laminate counters are around $500 to $1000 and granite slab around $1,500 to $2,500 depending on how many square feet we have to install. For houses under $150,000 we usually use laminate counters and for houses over $150,000 we use granite. Replacing cabinets is trickier because there are so many different types of cabinets in varying condition. Once again the price of the home will dictate if we try to save cabinets or not. If the cabinets look solid and are in fairly good shape, we may paint them white. I am not a huge fan of white cabinets, but many people love them and most people don’t dislike them.
I will try to save cabinets in my rentals and low range flips. If the cabinets are broken at all, I will usually replace the kitchen. We can replace all the cabinets in a basic kitchen for $3,000 or less from a box store. The box store cabinets are not top of the line, but they offer many styles and work great for us. I am particular to maple cabinets as I think oak has way too much grain and makes homes look dated. Cherry is nice too but can be too dark. The knotty pine look used to bug me, until I bought a house with those cabinets. After a few years it really grew on me, the problem was it took a few years and when selling a house you don’t have that much time. I think the knotty pine is an acquired taste and when you repair investment property, you want to appeal to as many people as possible. We always stick to a light to mid color stain and basic maple cabinets. You can’t go wrong with white cabinets either as they will appeal to a broad base of buyers.
Additions or large remodel jobs on a fix and flip or rental property
My general rule of thumb is never put on an addition. In my area land is not valuable enough to call for an addition, and I will almost never get my money back. Remodeling or moving rooms around in an existing structure may make sense in certain circumstances. I am usually not in favor of moving kitchens, baths or other major components. It is too expensive to make major changes and usually not worth the cost. In my rental properties I will add a bedroom if it is easy to do because it adds rent and value to the home. Many times I will only have to add a door or a closet In order to add a bedroom. I may have to move a wall or finish a room in the basement to complete a bedroom, but it is usually worth the cost. Many times I can turn a four bedroom house into a five bedroom house for $1,500 or $2,000. If you already have five bedrooms in a single family home, it is probably not worth it to add a sixth. I will add bedrooms in both my flips and rentals because of the value it adds.
More expensive the house, more expensive the rehab is on investment property
You may be noticing a trend with my repairs. The more expensive the house, the more expensive the repairs. This is a key point to remember when you sell your house. The more expensive the house, the nicer buyers will want the home. Buyers will want upgraded appliances, kitchens, baths and everything to be perfect. In the lower price ranges you can usually get away with houses not being completely upgraded. On our more expensive flips, we usually make less money percentage wise than our lower priced flips, especially if a lot of repairs are needed. High end repairs and upgrades really add up in the pocket-book and eat away at profits.
Landscaping repairs on a fix and flip versus a rental property
Landscaping can be another tricky repair item, and much of what I do depends on the time of the year. I love completing flips in the winter, because I don’t have to worry if the yard is dead or not. In the summer a nice green lawn can really make a home look great. We try to make sure our flips have nice yards and great curb appeal. We will sometimes add mulch or other landscaping material to make the home look as good as possible. First impressions make a big impression on buyers.
On my rentals I make sure every house has a sprinkler system on a timer. I set the sprinklers for the tenants and we don’t have to worry about the yard dying. We do varying degrees of yard work on our rentals depending on the time of year and what the tenants want. We make sure the front yard is nice, but many times the tenants don’t care about the back yard.
Repairing and replacing mechanicals on investment property
When we repair investment property, we always make sure the mechanicals are working properly. Much of our repair costs go into new hot water heaters, infrared heater, and air conditioners. If the units are getting old or show signs of failing on our flips, we will replace them. On the rentals we may wait to replace older units, but we will have them inspected to make sure they are safe. It is best not to wait with hot water heaters as they can rust out and flood a house very easily. I will try to keep roofs as long as possible on my rentals, but we replace them if they are worn on our flips.
When you repair investment property it can take a lot of time and money. You want to make sure you are making the right repairs for what you intend to do with the property. I know I did not cover every repair that is needed in homes, but hopefully this gives you an idea of what I do to maximize my investment. Here is a great article on how these repairs and improvements may be written off on your taxes.