The “Rent Ready” Myth
Have you ever gotten that email about a “rent ready” investment property? You know the one, “Great Cash Flow. House Needs Cosmetic Repairs. Rent Ready Condition.” I’ve gotten it. In fact, I see this email at least twice a week.
Every time I see the “rent ready” line, it makes me angry.
“Angry? That’s an odd response,” you might say. Well let me explain.
When I was first introduced to Real Estate investing I was broke. Broke as a joke, actually. I pulled a few bucks together and purchased a cheap “rent ready” property. Sure the place needed cosmetics (just come carpet and paint), but why should that stop me?
I painted the house myself, paid a carpet installer to put down new rugs and then threw a “for rent” sign in the window. Before long I had a new tenant. Everything was moving according to plan. I had my first rental and was making $600 per month.
But pretty soon my “rent ready” house wasn’t so rent ready anymore.
It started with the roof. We had a bad rain storm and the roof started leaking. I called a roofer and he went out the next day to take a look. He offer to put a patch on one area for $500 or replace the entire thing for $3500. I patched it, of course.
Two months later the heater died. The unit was too old to repair so the HVAC contractor recommended a new model. I scraped together the remainder of my savings and forked over $4800 for a new heater.
A week later, the roof started leaking again. The roofer wouldn’t patch it again so I borrowed $3500 from a close friend to make things right.
Throughout the process a strange thing happened. Even though I made every effort to do the right thing for my tenants (patch the roof, replace the heater, replace the roof) they were fed up with the constant irritation of these constant repairs. So they left.
I was 6 months into an investment property with $3600 of income, $10,300 of expenses and a vacant property that needed cosmetic work to get it ready to rent.
The property wasn’t nearly as “rent ready” as I’d thought. Since this first rental property I’ve learned a lot about being penny wise and pound foolish.
Whenever I purchase a new investment property for myself or with a client, I look at the property with close scrutiny. Every asset undergoes strategic repairs replacing any mechanicals that do not have a realistic life of at least 10 years. In most of our houses this means:
- New heating system
- New roof
- New windows
- Electrical system upgrade
- New chimney liner
- New plumbing drain line
Is the initial cost of the investment more than those “rent ready” properties? It sure is. But my clients plan to refinance the asset after the work is complete. With the amazing low interest rates we have today, an extra $10,000 in renovation costs is only $54 per month.
In addition, my tenants have nothing to complain about. Contrary to popular belief, most renters are not out to get their landlords. They just want a place to live where they can make a home for themselves without having to worry that they’ll be rained on or that their belongings will be ruined. The result is a much lower vacancy rate and much higher profit margin.
So what’s the bottom line? Forget the “rent ready” investment. Do your homework. Be realistic about the cost of repairs and the scope of the renovations. Then buy right and rehab the property. The result will be an investment and a property that you can be happy with for years to come.