The new book “House Investors’ Manual” (2009), released this month, by real estate broker Lambert Munz offers a look at the buying rules ignored, unknown or untold regarding house rental investments. Munz bases his book on years of experience—27 years as a property manager. Read the book excerpt below to learn how to get more out of your rentals.
Don’t over-improve a property to later flip or rent. We can all renovate a house and have it come out looking like the Taj Mahal, but that will not put the most profit in your pocket. However,you shouldn’t cut corners or hide defects in a house. Avoid allowing the house to look like a rental, or the neighbors may turn on you.
It is best to establish a relationship with the neighbors. Most caring tenants don’t want to rent a house that looks like a rental. At the same time, if you’re renovating a $200,000 house, you do not want to install marble floors, Corian countertops, or other expensive additions. Focus on kitchen and baths. Spend all of your extra rehab money on these rooms, because these are the rooms that will sell your house; either as a rental or residence.
Cleaning and painting can produce amazing results to change the appearance of a house. Remember, make it nice and put out a quality product, but at the same time, keep in mind that you are not going to live there. The people who buy the house are most likely going to make changes anyway.
Some rehab ideas being done are tile floors or simulated wood floors avoiding carpet in high traffic areas. Renters as a rule don’t maintain carpet the way they should. It costs more up front, but is cheaper in the long run avoiding replacement more often than normal carpet life.
REMEMBER THIS RULE: Improve a house to the standards of the neighboring houses. Don’t over-improve as your value will be influenced more by the neighbors’ home values than your improvements.
You may be thinking, “Why all the rules?” The answer to this question is that rentals must be treated as a business. Lacking this attitude is a failing of many owners. You will be competing with hundreds of rentals. Only the best product at the best price is going to succeed. Renters think differently than buyers. They usually don’t care about granite countertops or stainless steel appliances. Their “wants” are in this order:
1. Rent amount
3. Square footage
4. Location to schools and close to work
5. Safe neighborhoods
6. Pets okay
Buyers want some of these things too, but their list of “wants” includes more high-end features and upgrades.