Are you contemplating buying your first investment property, or have you already jumped in? Regardless of where you are in your career, I’d like to talk about tailoring your property to the neighborhood. Beginners and veterans alike make serious mistakes in this area. Let me give you a few examples..
My friend John bought a rental across from mine. I didn’t know him when he bought the property. It was a foreclosure, boarded up, and I was thrilled to see someone had bought it and begun the rehab. This was a low-income section of town that had been struggling in recent years. As I watched the progrees, I wondered if he was putting a little “too much effort” into it. Three-dimensional roofing, high-end siding, etc…
I went over one day and introduced myself. Sure enough, this was John’s first foray into real estate investing. I offered him copies of my tenant application and my airtight lease, and gave him my phone number should he have questions. We became friends, and I was able to give him some valuable input throughout the years he owned the house. But, back to my original point…when I saw the interior, I was impressed but dismayed. Fancy moldings around the ceilings, maple cabinetry, beautiful wood floors, fancy sinks and toilets. What was he thinking?
He had fixed up that home as if he were going to be livng there! I can’t imagine he made much of a return at all on that investment. When I saw the inside, I didn’t say, “Oh my God, what’s the matter with you?” but since he hadn’t bought the stove and refrigerator yet, I did manage to suggest he check with my used appliance people. He looked shocked by that suggestion. I explained to him that their appliances looked new, but were less than half the price. He ended up spending about $500 for the pair, instead of over $1200.
Your home is your home. A rental is a rental. John had poured thousands of dollars into his rental, making it as nice (inside and out) as his own home. The money he paid for the extra bells and whistles is money he never recouped. Yes, you must make your rental comparable to those around it. But nothing more.
Most of my rentals are in low- to middle-income areas, and I “dress” them accordingly. I go basic on window and door trim, I don’t put in garbage disposals or icemakers. They get broken easily, and most tenants don’t expect this luxury. I buy used appliances, but they are in excellent condition. I don’t install ceramic tile floors (installation is way too expensive). Vinyl works well in kitchens and baths, and nice carpet (dark colors, a short pile or berber) works well everywhere else. Check out your competition, and make sure you compete with them.
At the end of the day, your job is to provide a nice rental and have maximum money in your pocket! Don’t blow it all on needless bells and whistles.