Monday, April 9, 2012

How to tenant-proof your rental property.

With rentals, there are 2 ways to improve and sustain the return on your investment.  The first is to "get by" as quickly and cheaply as possible, and rent the property out for quick cash flow.  The second is to provide adequate maintenance and invest in upgrades to the home, then renting the property out.  This post covers the second method, as it is the one I'm more familiar with.

There are three key results I have discovered while applying upgrades to my properties:
1 - Tenants are more careful/respectful when they live in a home that was given to them in good shape.
2 - Tenants are happy to pay a small increase in rent when they have upgraded homes.
3 - Property value increases.

With this in mind, I look for upgrades that are relatively inexpensive, provide good protection against tenant destruction, and provide a decent return.

This is a big one.  After my first lease ended I had to deep clean the carpet in the house.  After purchasing an expensive steam-cleaner and investing several hours of labor, I discovered this was not going to work long-term.  The house got re-rented and the next tenants moved out and guess what?  The carpet was now destroyed.  In terms of dollars per square foot, I found tiling my own property is cheaper than having a company like Lowes install carpet in my home, even with their free installation promotion running!
When the tile was complete, new tenants moved in, and were very  happy with having a tiled home.  When the tenants moved out, a quick 2 hour mob job and the floors were as beautiful as the day they were laid. 

Design the yard to be maintenance-free (or at least easy to maintain), and your tenants will take better care of it.  Find low growth shrubs or trees that don't require too much pruning, along with grass that doesn't require lots of water, and your tenants will not disappoint you.

A metal roof is a long-term plus.  With a metal roof you get a lifetime warranty (or 50 years).  Traditional shingles typically last 20-30 years.  This alone gives you a greater return, not to mention your less susceptible to wind, hail and storm damage.  This can also qualify you for a discount on your insurance, which is great.  Just know that if your home has a hole in the roof, all it takes is that one tenant who either doesn't care or doesn't pay attention and you will pay big.

Counter-tops and Cabinets
Heavy duty is always better.  Lower the chance of replacing your cabinets or counter-tops, lower the number of times you pay to replace them.  Statistically, aside from landscaping, money spent in the kitchen can add the most value of your home.  Additionally, your tenants feel they get more value for their buck too.

For those doing serious remodeling or new construction, here are a few suggestions.

Utilize PEX pipe.  This handles extremely hot and extremely cold water very well.  This does not corrode like your traditional metal pipe and does not crack like pvc pipe.  There are never joints behind your walls, and when installed correctly, you have the opportunity for a shutoff for every water exit, which is HUGE.  If you need to replace a faucet in the guest bathroom, you can simply flip the switch to shut the water off to that bathroom faucet without having to shut water off to the entire property.

Pre-determine the location of your electric meter and strategically place major appliances as close to that location as possible.  Less lineal feet of heavy duty wire means huge cost savings, plus you have less wire in the wall that can be damaged by tenants.

Metal studs with brick exterior (or stucco) is the way to go.  Remember that termites love to eat wood, and are expensive to kill.  The local bug killing company charges 6$ per lineal foot around your home to treat termites.  This averages to about $1100 for one of my rentals.  Also, tenants love to hang picture frames, what happens when they put a hole through a wooden stud containing conduit? Not good.

This post will be updated as I get more photos of my work.

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets. 


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