Should we be fully renovating rentals?

By Vena Jones-Cox

The time to do big cosmetic renovations on your rentals is when property values and rents are climbing, and incomes are keeping up with rents.

In those scenarios, it’s easy to BRRRR your way out of $20k in new kitchens and bathrooms, and it’s easy to justify the cost of the improvements, because it’s easy to raise the rents to get an ROI on them.

Right now, might not be that time.

OF COURSE I’m not talking about roofs, furnaces, plumbing, electrical, or anything else that affects safety, function, or the long-term health of the property. Fix the leaking roof. Replace the furnace that can’t be repaired. Maintain the property properly.

And I’m also not saying “Buy the property at a price that doesn’t take into account that it will NEED that new kitchen to actually reach the After-Repaired Value.

Too many people are already fooling themselves by saying, “The ARV is $300k, but I only need to put $30K into it to rent it, so $210 is a bargain” when, in fact, it would need $80,000 in work to be worth $300,000.

I’m talking about tearing out a perfectly functional kitchen or bathroom so you can install granite countertops, trendy cabinets, and luxury finishes—and then charging another $100 or $200 a month to justify it.

I’m not convinced that’s what the market needs right now, especially in B and C areas.

Rents have already outstripped a lot of people’s ability to pay them. And neither rents nor property values are rising fast enough in many markets to make a big cosmetic renovation an obvious financial win for the YOU.

I think there are more renters who would happily—gratefully, even—live with the older-but-clean-and-functional kitchen, if it meant that they could pay $2,500 less per year than renters who are craving granite countertops and the absolute tippy-top rent.

The renters who prioritize brand-new finishes have plenty of brand-new apartment complexes competing for them, and new build-to-rent houses. Oh, and recent rehabs that didn’t sell, and are now up for rent.

Maybe our opportunity as independent rental-property owners at the moment is somewhere else:

Clean. Safe. Functional. Well-maintained.

And a rent that leaves the tenant enough money to live.

What do you think? Are you on the “Make it like I’d want to live in it” train, or the “Make it functional and affordable and safe and healthy” cohort?

We’re hearing two very different opinions from our members right now, and we’d like to know what you think.

One side says:

“Do the big cosmetic renovation. Give renters the new kitchen, updated bathrooms, granite countertops, trendy cabinets, and finishes you’d want in your own home. Better properties attract better tenants and command higher rents.”

The other side says:

“Clean, safe, functional, and well-maintained may be more desirable to today’s renters than luxury finishes—especially if keeping the perfectly functional older kitchen allows you to charge $100–$200 less per month.”

Obviously, NO ONE is talking about deferring necessary maintenance. Fix the leaking roof. Repair or replace the furnace. Address plumbing, electrical, safety issues, and anything that affects the property’s long-term health.

And to be clear, we’re not suggesting that investors use a rental-quality repair budget to justify an unrealistic ARV.

If a property would need $80,000 in work to be worth $300,000, you can’t say, “The ARV is $300,000, but I only need to spend $30,000 to rent it, so buying it for $210,000 is a bargain.”

The question is simply this:

If a kitchen or bathroom is older but clean and fully functional, does it make sense to spend another $20,000 replacing it right now?

When property values, rents, and incomes are all rising, it can be easier to BRRRR your way out of that additional investment—or to raise the rent enough to earn a reasonable return on it.

But right now, particularly in B and C areas, are enough renters willing and able to pay another $100 or $200 per month for luxury finishes?

Or would they rather live with an older-but-functional kitchen if it saved them approximately $2,500 a year in rent?

The renters who want brand-new finishes already have new apartment communities, build-to-rent houses, and recently renovated homes that didn’t sell, and are now rentals, competing for them.

Maybe independent rental-property owners should compete there, too.

Or maybe our better opportunity is providing clean, safe, healthy, functional, well-maintained housing at a rent that leaves the tenant enough money to live.

Which camp are you in—and what are the renters in your market actually choosing?