Rehabbing your investment property is sometimes a choice and sometimes a necessity. Whether you’re doing it to bring the unit up to habitable conditions or you simply want to make enough of an improvement that you’ll raise your rents comfortably and attract better tenants, you need to be thinking about costs as well as design plans.
Materials are more expensive. Supplies are more expensive. Labor is a lot more expensive, and sometimes difficult to find.
There are still plenty of ways to control the costs you’ll have to face during your rehab, however. Keep your profits high with these strategies that we’re offering as experienced property managers serving Idaho Falls and Pocatello.
Put Together an Intuitive Budget
To control costs, you have to stay on budget.
To stay on budget, you have to have a budget.
As you’re budgeting for renovations on your rental property, remember that you’re not renovating your own home. This is a rental property; a source of income. You might end up placing residents who do not appreciate or need granite counters and marble floors.
The budgeting process should also include the projected return on investment you expect from this rehab. How much more will you earn by rehabbing this investment property?
- Decide what to repair vs. replace
Repairs are tax-deductible immediately while renovations must be amortized over many years in order to win any tax relief. Some things, however, may need to be ripped out and replaced. Others might just need a quick service. Knowing whether you will tear up the floors and install something else or simply refinish the wood, for example, will help you budget.
- Choose renovation projects that will drive ROI
Even if you’re rehabbing a rental property because it’s in total disrepair and needs to be renovated, you’re still hoping to make some money off of it once the project has been completed. So, when you’re budgeting for upgrades and improvements, think about which projects will likely bring in the most return on investment from a renovation.
Renters look at kitchens. They want clean, bright bathrooms. Floors are important, as are energy efficient appliances and security. When you’re budgeting for your rehab projects, make sure you’re addressing the unique needs of your property. If you’re rehabbing to increase rental value and attract highly qualified tenants, these are the improvements that are likely to be the most affordable and the best use of your resources:
- Improved showers and tubs in bathrooms. Check the condition of lighting and floors as well.
- Minor kitchen remodels to include better lighting, new appliances, and updated hardware on drawers, cabinets, and sinks/faucets.
- Accessibility. More and more retirees are entering the rental market. Many have sold their homes and rather than buying again, they’re renting. Renovations to make rental properties more inclusive and accommodating will ultimately pay for themselves.
- Floors. Tenants prefer hard surface floors because they’re cleaner, easier to maintain, and less likely to trap odors, allergens, and dust like carpet does.
- Add storage. An island in the kitchen can provide extra shelves, for example. A shelving structure over your toilet or vanity can provide additional space.
- Choose low-maintenance finishes and features. Paint your cabinets instead of replacing them. Paint the trim on your walls or the ceiling.
- Counters do not have to be granite or fancy. Resin-based or laminate counters are just as attractive as natural stone but a lot cheaper. They’re also easier to care for and keep clean.
- Backsplash behind the stove or the sink in the kitchen can deliver a lot of charm for a little money.
Keep your renovations simple, and make your rehab projects surface-level unless there’s a major habitability issue or foundational problem at play. This will be easier on your budget.
Don’t make the mistake of over-renovating your rental property. You want the rehab work to match the size and style of the property, as well as the neighborhood overall. Know your competition. The bamboo floors might look great, but if every other rental home is using faux hardwood, you’ve probably gone a step too far, to the detriment of your budget.
Renovations can feel like a big undertaking, and keeping costs in check starts with a good budget. At the end of the day, well-planned renovations can help you increase your rent, reduce maintenance costs, and better position you to compete with other rentals in the area so you can attract quality tenants.
Shop Around for Local and Online Deals
You can control costs when you know where to shop. For example, a little bit of research will show you which stores have the least expensive appliances, paint, ceiling fans, and plumbing fixtures. You might be surprised at the differences in cost from one store to another. Sometimes, the large chain hardware stores are going to provide you the best deal. But, not always. Check the little guys, too.
Get to know where the bargains are in Idaho Falls and Pocatello. Talk with other investors, contractors, and property managers. Find out where they’re buying their materials and sourcing supplies. A little bit of networking can introduce you to some great leads, which will take you to fantastic deals.
Develop relationships. This will keep your costs down. When your local stores know that you’re a real estate investor rehabbing a property, they’ll perhaps give you a good discount or loyalty pricing. This is because they’ll know that they can expect future business from you, if buying and rehabbing properties is something you do. You can find store owners who will be willing to give special deals on materials to contractors or investors.
Shopping in person is a great idea; you can get a look at what you need. Don’t forget the power of online retailers, though. Sometimes, their lower overhead translates into bigger savings for you. Sign up for emails and newsletters. Look for sales. Spend time on websites comparing costs.
It takes time and energy, but if you can make a visit to all the home improvement stores in your area and scour the internet for good deals, you’ll likely find closeouts, sales, and clearance items that you can use in your rehab project.
Always ask about return policies. You want to make sure that anything you buy can be returned, in case the item doesn’t work in the property for some reason, or if you end up with far more of something than you need. Holding onto materials and supplies can be beneficial if you know you’ll use them again in the future, but if you’re trying to save money and keep costs down, don’t hesitate to return what you won’t need or use.
Establish Vendor and Contractor Relationships
Your biggest cost when approaching a rehab project will be labor.
Unless you’re doing the work yourself, you’ll need drywall experts and plumbers and electricians; the list goes on. You’ll want to control these labor costs by finding outstanding service providers who are licensed, insured, professional, and affordable.
Vendors and contractors are busy, so you’ll have to give them a reason to work with you. Provide them with consistent work. Refer them to other investors or friends, and make sure they’re told who made the referrals. Over time, they’ll reward your loyalty and your patronage with discounted rates.
Unit Economics: Consider Buying in Bulk
It may seem like you’re spending more, but when you can buy in bulk, you’ll likely save money in the long run. It’s basically unit economics, and it’s also shrewd marketing by your suppliers and retailers. Of course they’d rather sell you 10 stoves than just 1. And, they’ll give you a big break on pricing. So, if you have 10 units to rehab, you’re getting a great deal.
What if you don’t have the 10 units to furnish with a stove? Negotiate a deal on the number you do need. Most stores will be willing to work with you. They’ll mark down materials if you buy them in large quantities. It doesn’t even have to be a major appliance. Perhaps you’re buying two dozen switch plate covers. If buying twice that many means saving 50 percent, you should go ahead and invest, and save those extra switch plate covers for when you’re rehabbing again. They’re not difficult to store.
Apply for Store Credit Offers
Credit cards are a gift and a curse; you have to control your spending, and sometimes easy credit makes it too possible to overspend. But, if you can exercise some self-control in that regard, obtaining store credit and using it will often come with discounts that can help you save money on day-to-day purchases as well as major rehabs. When you want to keep costs down, it’s important to avoid the high interest rates that can sometimes show up on these cards.
If you can pay off that balance to avoid the interest, though, you’ll find you get a discount every time you use a store card. There will be coupons sent to you and special discounts and offers. All of that is likely to add up in your favor.
These are just a few ideas on keeping costs as low as you can during a rehab. We’d love to talk through your project with you, and make some additional suggestions. Please contact us at Jacob Grant Property Management. We work with investors who own rental property in Idaho Falls, Pocatello, and the surrounding areas.
