At some point, you are going to be faced with rental rehab decisions. It may be converting the home where you live to a rental. Or you already rent and the turnover of tenants forces decisions. You will be faced with considering what repairs, improvements, or maintenance will best help to bring the highest dollar rent. The list and its potential ROI (return on investment) should be considered in respect to the current market reality. For example, if the tenant can go next door and rent for $50 less per month; your brand new blinds and towel bars are probably not going to encourage them to select your home and pay more. Renters are making short-term decisions that are often as simple as function versus price.
The following three-step process is one we have used for over 20 years to simplify rental rehab decisions for non-occupant owners. It is called our “COULD, SHOULD, MUST” process.
The COULD items are optional and might improve marketability. Marketability really means lowering the property’s days vacant. Painting certain rooms a neutral color might be an example. New blinds or towel bars are likely optional and are simple improvements…but are not going to improve your return on investment.
The SHOULD list often is a list that can be extended over a few years. The SHOULD plan needs to be put in place with some of the items completed now. An example is a 15-year-old roof will need to be considered a SHOULD item because tenants do not have the same passion for addressing the water stains that appear every time it rains. So a lot of interior damage could ensue prior to feeling that the roof is a MUST item. It is often best that SHOULD items do not become MUST items. Some SHOULD decisions are also a reflection on the owner’s resources. Making a budget in order to plan for the development of resources to resolve the SHOULD item is often a successful strategy.
The MUST items leave little choice. Hopefully, SHOULD items do not become MUST items before they are tackled, but often that is the progression. Every rental owner needs to have a budget item for the MUST items. These are the emergencies that can’t wait or the items that make a home totally not rent-able. MUST lists affect the ability to ever get a new tenant. Items like a room that stinks of dog urine, or a basement with mold. The MUST list is where the property manager begins in order to bring a home to the point of marketing to tenants.
Deciding what repair or rehab items “COULD, SHOULD, MUST” be done to rent a property can be difficult if you allow any emotion to play into your decisions. Owner’s end up investing far too much when they continue to think in their mind that someday they may live in the home. For many homes there is “rent quality” and there is “own quality”. Stick with “rent quality” on things like carpet, fixtures, appliances and paint jobs. “Own quality” is a good decision when it comes to cooling, heating, plumbing, exterior siding and roofing. A good rule of thumb starts with asking if the item is something the tenant can mess up? If so, then stick with “rent quality”.
A professional property manager can assist an owner in identifying, and prioritizing, rental rehab decisions. These decisions start by discussing the investments needed and what level of spending is appropriate. A professional property manager can review a property for lease and should be able to make a list of what COULD be done, what SHOULD be done, and what MUST be done. Deciding what you can afford will be easier when you use this process. Improving a property’s ROI begins with prioritizing and planning for the future.