Creative Ideas for Remodeling a Rental Property
Brought to you by Farmers Insurance®Find out how these landlords make the most of a renovation budget to help land great tenants and maximize monthly rent
When Denise Supplee was getting a property ready to rent, she realized she didn't have enough budget to renovate the kitchen. "It was a really old kitchen — I'm talking white metal cabinets from the ‘50s. While it was functional, I knew it would be tough to get a renter to go for it," says Supplee, a Philadelphia realtor and investor who has owned and managed more than 200 rental properties. "I had enough money for the materials, but not the work."
So the rental entrepreneur got creative. She listed the rental at $1,900 a month, but included a note that she'd drop the rent to $1,600 for a handy renter qualified to rehab the kitchen. Not only did she find a tenant with the skills to do the work, she made a savvy business choice: "Not only did I get a brand-new kitchen for the cost of materials, but that tenant ended up staying for more than three years because he had a home he really liked. He'd put his own touch on it."
Whether you've purchased a property with the intention of finding renters or you're turning a home into a rental unit, improvements and renovations may help maximize rental income. According to the Census Bureau's American Community Survey, the number of renter-occupied housing units in the U.S. stands at a 50-year high, and increased nearly 20 percent between 2005 and 2015 (from 36.7 million to 43.7 million). The steady growth has also driven small-scale renting through online rental sites. But the ROI on a rental isn't a guaranteed slam-dunk; as Supplee discovered, maximizing your profits as a landlord takes smart planning and, sometimes, a little creativity.
Start a Remodel in these Rooms
According to the Bureau of Labor Statistics, with the exception of sleeping and watching television, most Americans' activity is centered in the kitchen (cooking, food prep, eating) and bathroom (personal care). Not surprisingly, kitchen and bathroom remodels may offer the best ROI for landlords, as renters see the value in these rooms, too. Kitchens and bathrooms also have a bigger "wow" factor when prospective renters view a property, says Dana Bull, a real estate investor, agent and landlord in Boston. Supplee agrees: "While other rooms can be changed with design elements, you get what you see when it comes to kitchens and baths."
Rental Property Value x 15 Percent = Maximum Budget
According to the National Kitchen and Bath Association (NKBA), a full kitchen remodel budget shouldn't run more than 15 percent of the market value of the home, or five to 10 percent of the home's value for bathroom renovations. Bull and Supplee agree this is good advice for any home — whether primary dwelling or investment property — but they typically spend less on homes they plan to rent.
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Have You Ever Heard of "Greige"?
If the answer is "no", it may be the kind of detail you need to know if you want to get market (or higher) rate for your rental, says Bull. "I have a few properties in nicer areas of Boston where you can get $2,500 a month for a one-bedroom," she says. "If I want to get that, I know I have to paint the walls ‘greige' [grey-beige], update the kitchen with stainless steel appliances, and make sure all of the other cosmetic changes I do are in line with other rental properties in that area," she says. To get a sense of design trends in the neighborhood, go to open houses and check other rental listings in the area.
And Then There's Light
"In one of my rentals, there's a small room with no windows — it was a bonus room that didn't feel like such a bonus," Supplee says. "I bought a white electric fireplace for $400 and it transformed this dark space into a sweet little room."
Supplee's takeaway: paint the walls and ceilings, clean the windows and add lighting in spaces that feel dark, including inexpensive exterior lighting. Small lamps along walkways looks great at night when prospective renters may cruise by for a look — and it creates a sense of security, says Supplee.
Lighting a backyard space can also entice renters. Sky Cole of Fort Collins, Colo., said patio lighting at the home she's renting sealed the deal when she and her boyfriend were looking at houses to rent. "We love to entertain, and it made the space feel like a cozy spot for barbeques," she says. "It's a small thing, but it set the house apart from the rest.
Keep the Landscaping Low Maintenance
According to HomeAdvisor's 2017 guidelines, homeowners pay an average of $3,300 on landscaping — a rate that doesn't include monthly out-of-pocket expenses or time for upkeep.
Great landscaping can upgrade the curb appeal of a rental, but it doesn't increase the rental rate or deliver the return on investment you'll get from better appliances or refreshing interior paint. Unless the yard is in rough shape, landscaping should be the last item in your budget, says Supplee. Instead, buy a few hard-to-kill potted plants for the front porch/walkway or backyard, such as coneflowers, zinnias or daylilies.
Once the renovation is complete, Bull recommends the final touch of springing for professional photography for the listing — an expense that typically runs her $100 to $200. "Even if you have a room you weren't able to brighten up so much, professional photos will make it look great. Prospective tenants will remember how great the photos looked when they see the place in person," says Bull.