Renovation for Rental vs. Renovation for Flipping: What’s the Difference?
Don’t judge a house by it’s curb appeal…unless you’re selling.
Renovating a property should always add value to it, or else what’s the point? But that doesn’t mean that all renovations are the same — because not all value is the same. Different people value different things. The question is, can we establish some firm differences between renters and buyers that make pre-rental renovations distinct from pre-sale renovations?
A Few Things That Are NOT Different
Just a few small notes before we start that absolutely all investors should note. First off, you shouldn’t ever over-improve a property. If you put crown molding and granite countertops in a property in the slums, you’re still not going to be able to rent or sell that property for enough to recoup the cost of those countertops. That’s an extreme example, but the principle applies everywhere: you want your property to be slightly above the average for a neighborhood, but not the best, or you’re going to end up over-improving.
Similarly, both renters and buyers expect a property to already be at the standard for the neighborhood. If your property is the only one on the block that doesn’t have appliances and central air, you’re making it harder to rent or sell that property — but at the same time, if you do add those things, you’re not really adding that much to the average amount you can rent or sell for, as they’re expected. Essentially, achieving the neighborhood’s baseline is a necessary, but sunk, cost. You have to reach for something above the minimum without exceeding the maximum.
The First Big Difference: Curb Appeal vs. Living Improvements
When you renovate-to-flip a property — in other words, to sell it quickly — you want renovations that improve basically three things: the first impression, the wow factor, and the shiny details. In other words, you want beautiful landscaping, healthy plants, fresh paint and detailing like new house numbers, and at least one ‘wow’ like a new deck or all-new-everything kitchen & bathroom(s). These people are considering a dozen properties or more, and if you can’t stick in their heads with something that they keep coming back to, they won’t come back.
When you renovate-to-rent a property, you want renovations that are going to make people feel like they can — and want to — live there comfortably and conveniently. Renters generally don’t associate themselves with the property they rent, so curb appeal doesn’t appeal as much (because it doesn’t reflect on them as human beings the way it does for a homeowner). Now we’re not advising you let the outside look like a jungle, but don’t worry too much about making it more than average. On the other hand, tenants really do want energy-efficient appliances, storm windows, clean dry storage space, and small creature comforts like ceiling fans, air conditioning and microwaves. Those things sell prospects on rental properties in a way that flash and wow-factor usually don’t. Focus on the kitchen and the bathroom — the places where people ‘work’ the most inside the property — and on improving functionality, efficiency, and comfort, and you’ll rent faster and for longer.
But Don’t Renovate Without Doing This First!
The other critical element in renovating for a rental is cleaning everything. There’s no point in replacing all of the windows with double-pane hurricane glass if you’re going to leave the grout around the bathtub moldy. Deadly serious here: you will lose far more prospects to a few square feet of grime than you will ever gain with any amount of ceiling fans and Energy Star appliances.
Keep it clean, renovate to improve the realities of everyday life, and advertise the heck out of those renovations — that’s how an above average property manager does it.