Remodeling investment properties? Aim for the middle

Tuesday April 25, 6:00 am ET
Pat Curry

bankrate.com

So, every time you find yourself lingering over granite countertops, crown molding and $10 drawer pulls that look like little forks, knives and spoons, ask yourself, "Will it increase the value of the unit? Will it help sell or rent the unit faster or for a higher price?" If not, put it down and back away. This is about making money, not making a personal design statement.

What's more, there are rules for resales and rules for rentals.

You might legitimately agonize over stainless-steel appliances on a resale house because they're considered an upgrade by today's buyer -- the new appliances could increase the sales price or reduce the selling time, both of which will add to your bottom line. You wouldn't think of putting them in a rental unit, though, unless you're in a high-end market that is willing to pay extra for style points. Otherwise, they're too expensive, it would take too long to recoup the investment and they're going to get beaten up by tenants. Black appliances are just as elegant and won't show dirt, grime and fingerprints nearly as much.

So whether you are planning to rent out a property or resell it, you need to invest your rehab dollars wisely.

First, curb appeal counts. All of the experts will tell you the same thing: People buy and rent properties from the outside in. If you can't get them out of their cars, they can't see what's inside. That translates into giving the front door and the exterior a fresh coat of paint, or pressure washing brick or vinyl siding, and replacing any damaged wood, broken windows or screens. Clean up the landscaping by removing any dead trees and trimming or taking out overgrown shrubs. Obviously, any junk or clutter in the yard has to go.

"A fresh, clean, light, airy appearance is critical for both renter and buyer," says James Randel, author of "Confessions of a Real Estate Entrepreneur."

"I bought a property when I first started that was just so frigging dark and dreary, we cut in a new big picture window and took down a tree that was blocking all the light," Randel says. "With a $1,000 expenditure, the sun just flowed into the house. It was like a whole new house. The value went from $100,000 to $180,000."

But don't think curb appeal stops at the front door, says Robert Irwin, a Los Angeles-based real estate investor and author of eight books, including "Find It, Buy It, Fix It."

"When they open that front door, the first impression is critical, too," Irwin says.

Inside the house, you'll get the biggest bang for the buck in four places -- the kitchen, the master bedroom, the master bath and the front entryway.

"If you're going to put some money in, put it there," Irwin says.

A fresh coat of paint in a neutral color is standard advice for any house that's on the market; the pros also recommend ripping out old carpet, no matter how well it's been maintained. For rental units, many investors opt for laminate hardwood or tile floors for the ease of upkeep.

"We've seen where Harley-Davidsons were rebuilt in the living room or cigarettes were ground in the carpet," says Los Angeles-based real estate investment adviser Lisa Vander. "A lot of my really great thrifty and profit-minded investors are shifting from carpet to tile and putting in throw rugs."

Randel agrees. "I don't care how nice the people are and how big a security deposit, there will always be carpet issues," he says. "We used wood flooring; the worst thing you had to do was re-sand and re-stain. In the kitchens, you do tile or linoleum."

To keep kitchen remodeling costs down, interior designer, real estate investor and author Sharon Hanby-Robie suggests stock cabinets from a home-improvement store. Also, if you're gutting the kitchen and have some flexibility in the layout, visit the major kitchen showrooms and ask if they're getting rid of any displays. They change those out about once a year, she says. You can also scour Habitat for Humanity resale stores for interesting architectural details on the cheap.

You can make your rental unit stand out from the competition, Hanby-Robie says, by installing a basic dishwasher and offering a washer and dryer. "Gals don't want to have to go to the Laundromat," she says. "That will make renting your place so much easier."

Of course, you can't get any cheaper than free. Real estate investor Brent Knittel has eight condos in Lake Tahoe, Nev., and has remodeled all of them on his own. A high school special education teacher, he's on a tight budget, so he keeps an eye out for used, white appliances.

"If someone is upgrading to a new appliance, I'll be there with my truck to take their old appliance," he says. "I'll yank it, store it and use it in the next remodel. I always take refrigerators, and washers and dryers are selling points. A lot of rental units don't have those."

That strategy is fine for rentals, says Irwin, but it won't work on a resale.

"There have been huge changes in appliances in the last 10 years," he says. "If you want top dollar in a house, you have to replace appliances with new ones that look good. There is a level just above the basic one, but looks pretty darn good, that's a good line to put into the property. They're not expensive but they're expensive-looking."

One final way you can spruce up an investment property is to update the lighting. New lights in the hallways, bedrooms, baths and kitchen can make a world of difference, says Steve Berges, a Lake Orion, Mich.-based real estate investor and author of "101 Cost-Effective Ways to Increase the Value of Your Home."

"You want bright and cheery, not dark and dreary," Berges says. "In some older houses, the lighting fixtures are so dated and worn out. You can buy $500 worth of lights and dress that house up on the inside."

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