Your Real Estate Business Is What You Make Of It
By Paul Esajian on July 28, 2014
Every successful investor keeps a relentless eye on their bottom line. While it is important to watch your budget and know where your money is being spent, it is also important to deliver a property that buyers or renters actually want. More often than not, this requires spending money on the right repairs and upgrades that will stretch your dollar. You can glaze over the plumbing, electrical and insulation, but eventually this will catch up with you when you are trying to maximize your rental or sales prices. If you try to sweep these issues under the rug, they will eventually catch up with you. They could even end up costing you more money in the long run. The real estate industry and every individual property, for that matter, will return what you put into it.
There is a big difference between being cost conscience and putting a cheap fix on a job. More importantly, there are dozens of ways to save money and still provide a quality product. It is when you know the problems are bigger than the amount of work you are doing that leads to trouble. Work can always be replaced and upgraded, but this will be at a cost. In the interim, you may not be able to get full value from your tenants. At a minimum, you run the risk of the problem being exposed and forcing you to take care of it when you least expect it.
The repair process should start with people that know what they are doing. If you fancy yourself a handyman but have limited experience in plumbing or electrical, you need to leave it to the experts. It may go without saying, but electrical issues can lead to much bigger problems than trying to save a few dollars a month. If something happened to your property because you didn’t bring the electricals up to code or you opted for a quick fix, you would probably regret not hiring a professional to do things right. A rental property should be handled as if you were living in it yourself. If this is the case, you better believe you would spend the money to make sure that there was nothing going on with the outlets, circuit breakers or anything else that could lead to bigger issues.
Plumbing is also looked over more than it should be. Just because the pipes are not exposed doesn’t mean they won’t be a problem down the road. If you go with top quality plumbing pipes, you should feel confident that you can get years of use out of them. Alternatively, if you go for a stopgap, inexpensive solution, you will have to deal with issues every few years or so. You can also get a phone call at any time dealing with flooding or drainage issues. A few hundred dollars at the time of insulation can save you thousands of dollars in the not so distant future.
It is also important that you address the walls and insulation in the property. You can patch up the roof and not do a full overhaul, but your tenants will see the effects in their electricity bills. If your tenants are unhappy, you will deal with constant turnover and eventually less demand. If the house is poorly insulated, the house will be cold in the winter and warm in the summer. Neither scenario is pleasant for a renter and would certainly be something a would-be buyer will notice. You will eventually sell the house. When you do, all of the work you do will be exposed and lower your property value.
Any work you do and repairs you make should be done with an eye on the future. This includes paint, lawn care, flooring, fixtures and appliances. You can put cheap paint on the walls, but it may only last the duration of one lease. In high traffic areas, you will be painting every year. This will be at the cost of either your time or money. The same goes with any exterior work you do. You can pay a landscaper to trim the bushes or trees, but eventually they will grow back and have to be done again. If you can eliminate the problem and spend the money to have them removed, you will never have to worry about them again.
There is much debate as to what to do with any appliances in your rental properties. One theory is to ride it out for as long as you can with the appliances you have, knowing that you will need to replace them at some point down the road. The opposite approach is that you buy higher quality appliances with the thought that you will have them for 10 years or more, all while attracting better tenants at a slightly higher price point. The decision comes down to where your property is located, who your target tenants are and how long you want to keep the property. If you know you will hold the house for as long as possible, it probably makes sense to go with the higher quality and not have to worry about it. Of course, it doesn’t necessarily add value to have stainless steel appliances in a one bedroom unit where tenants are looking at affordable options.
Any time you purchase a property with the goal of rehabbing in mind, you have the ability to do anything you want to do with it. Many times, in an effort to squeeze every last dollar out of the property, you end up costing yourself in the short and long run. Skimping on repairs and upgrades can cost you down the road.