First rental property? Security deposits, credit checks, and home renovations can seem DAUNTING when it’s your first real estate rodeo. How much do you charge, which tenant do you select, and will refreshing the grout allow you to double your passive income? These are just some of the questions you’ll have before you collect your first rent check. But don’t worry about answering them yourselves; we have the experts to help!
Welcome to this week’s Rookie Reply! If you’re just starting your real estate investing journey, this is the place to be! Ashley and Tony go through some VERY common questions, such as what to do if your tenant terminates their lease early, how much to charge for security deposits, and how to run your first credit/background check. For those who are a bit more experienced in the investing game, we also chat about HELOCs, rental renovations (and if they’re worth the cost), and moving properties into an LLC.
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Read the Transcript Here
This is Real Estate Rookie episode 332. How much should I charge for a security deposit? The first thing that you need to do is know what you are allowed to charge per your state laws. A really, really great resource is Avail.co. It will actually tell you what your state laws are.
Does this only cover damages for the security deposit? So, that’s what you would put into your lease agreement. And one thing I highly recommend is putting into the lease agreement what somebody will be charged. So, actually, itemizing like here is your checklist of things of how we want the apartment to come back from us. My name is Ashley Kehr and I’m here with my co-host, Tony Robinson.
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Today we’ve got a Rookie Reply, which means we’re taking questions from our Rookie audience. I say today’s episode is a little Ashley heavy because we’re talking a lot about tenants and long-term rentals. We talk a little bit about LLC structures and HELOCs, but lots of good information we’re going to get into for you guys today. Yeah.
Yeah. We also talk about what attorney you should use from which state when you’re dealing with deeding properties, transferring title or creating your LLC and putting your properties under the LLC. So, lots of great questions today. If you have a question that hasn’t been answered yet and you want answered, please go to biggerpockets.com/reply.
All right. Now, I want to give a shout-out to someone by the username of Dela Rogue. This person says, “Exposure to realistic real estate. The show is great for people like me who work a full-time job, but want to learn more about investing. Real estate investing seemed overwhelming at first, but Ashley and Tony listening to them every single week helped me get comfortable with all the terms being thrown around and investing in general. I’m on the BiggerPockets forums now and learning as much as I can before I execute my first deal.
Thanks for all the tips guys.” So, for all of our Rookie’s that are listening, we’d love to hear from you. Tell us your story by leaving us a review on Apple Podcast, Spotify, wherever it is that you’re listening. But the more reviews we get, the more it helps the show grow and the more the show grows, the more we can inspire folks just like Dela Rogue. So, do us a favor, leave that review.
Now, let’s get in to your questions.
All right. Guys, so today’s first question comes from Gamba Lume Jessin. Gamba Lume, I hope I got the first name right there. But Gamba Lume’s question is, “Hi, team, me again. Question, if rent is payable in advance by the first day of the month and the tenant doesn’t do so and five days later they want to move out, do you demand rent for the month along with the late fees?” So, Ash, it’s probably more of a you question. All of my “tenant’s payment” before they step foot of my property.
So, I don’t have to deal with this as much. But how do you handle folks that want to leave? My assumption is that they still got to give you 30 days’ notice. Typically, that’s what’s going to be in your lease is you can’t just say, “Hey, I’m moving tomorrow.” But yeah, I guess curious Ashley to hear how you handle those kind of situations.
Okay. So, for this in your lease agreement, there should be some clause that states if you don’t give 30-day notice and you just randomly decide to move out that your security deposit is completely forfeited. With this, yes, I would still, if they didn’t give proper notice according to their lease agreement, they would still owe. In lease agreements you can see clauses too where somebody will put in that if you move out before your lease ends or you don’t give proper notice, you are liable to pay the rent on that property until somebody else moves in.
And as the landlord, you have to actively try to market and get somebody into the property. The hard part is trying to collect from that person no matter what your lease agreement says about them terminating the lease early or not giving proper notice, it is very hard to collect from that person. So, yes, you can still charge them for that month’s rent unless you get somebody into the property right away. So, say maybe day 10 you get somebody in, you could charge them for the first 10 days. But then, since you already have somebody else in the property, unless it specifically says in your lease agreement that if they move out early, they have to pay a full month’s rent and you retain their security deposit or whatever that may be.
That has to be written out in your lease agreement. In this example, let’s say there is no clause about moving out early or not giving proper notice. In this one, I would try to charge the tenants for moving, vacating early and see what would happen if they would actually pay it. One thing you can do is you can… and a lot of property management software is putting this into their systems now, where you can actually send a tenant’s information out for collections. And they’ll be able to… from there, the collection agency takes it and they call and they collect and you may get the money, you may not.
But also the collections agency takes a large percentage. They also have very regiment rules as to was actually eligible for collection. So, in the circumstance they may say in your lease agreement, it doesn’t say what the rule is for somebody terminating early. And we don’t think that this is something we can actually collect on by law.
Ash, let me ask you this question. I actually don’t know the answer to this. But if you had your tenants banking information on file checking, routing information or debit card, credit card, if they violated your lease in some way, could you just automatically bill their card? Is that like a thing that long-term landlords do?
The property management company that I used to use, they actually would take the tenant’s information for their auto withdrawal and they would set up on their end. So, they would have the full account information whether there’s credit card or a bank account. The software that I use, I do not see any of that that is completely in the residence control. But one issue when I let the other property management company go and took back over when we switched everyone over the property management company never turned off everybody’s online payments. So, people’s account had paid us the new property manager, but also then they got the money taken out of their bank account because the property management company never shut off those payments.
And it actually was a huge ordeal. Obviously people were really upset because they just double paid for their rent and it’s like, “Okay, how is it getting back?” And then, it was a nightmare just figuring out, okay, who already paid the property management company and who didn’t and things like that. But I don’t like the responsibility or the aspect of me actually having that person’s account information. I like it that it’s a third party software that has security in place, cybersecurity in place where that information is protected.
So, just like with tenant screening, if you are actually going to do your own tenant screening where you’re going to collect to the person’s social security number, you’re going to do all these different things. A lot of software company will actually do a check on you as in they send someone to your office to make sure you have a lock on your door, you have a filing cabinet with a lock that your computer is encrypted, all these different things just for you to collect somebody’s social security number. So, with all of the internet things that go on and all of the scams and everything today, I would suggest if you can avoid.
And this is one of those situations where you can use software and you can avoid actually collecting your tenant’s bank information or credit card information and somebody scams them, it could make you reliable because they say, “Well, you don’t have any kind of protection. Somebody could easily hack into your computer and get that information off of it,” things like that. But Tony, I did have a question for you though, which it’s more towards medium term rentals, but it’s through Airbnb. So, there’s been a couple of times where I’ve had somebody saying for a long time, like three months say for example. And so, Airbnb will collect one month at a time.
So, if somebody books longer than one month, they don’t collect the full amount. People can set up payment plans almost where they’re in the property for a month and then month two, Airbnb will pull another payment from their credit card on file. I’ve gotten the notification that the Airbnb cannot collect from this person. And it doesn’t say what it is, but it’s always been rectified within 24 hours. I get the email saying the person has paid, but have you ever had anything like that happen or not?
Because it’s mostly short-term rentals. And what would be your suggestion of what to do in that circumstance? If you do have somebody from Airbnb in the property, they’ve rented it for three months, month two comes and they don’t pay and they shut off their credit card or whatever and Airbnb can’t pull from it anymore.
Yeah. We’ve never had that issue because all of our properties are traditional, true short-term where folks are at most during the holidays we might have someone say 7 or 10 days, but never anything beyond 30. If I were in that situation where I had an Airbnb guest whose payment failed, I mean obviously, I try and reach out to them first. But if for whatever reason I couldn’t get in contact with them, I feel like my next steps would be to try and get them to physically leave the property. So, I might try and call the sheriffs, I might try and call the local PD, whoever I can to assist in getting them to get out.
But then, it gets dicey and depending on what state you’re in on, if they’ve been there long enough, say that they’re on whatever, a 90-day medium-term rental stay, even like a six month and you’re on month four, when they stop paying, then you kind of get dicey around like, “Hey, what are your options?” So, my first move would be to try and get them to leave the property physically and then if I can, I guess you got to start an eviction process or something.
Yeah. Yeah. Maybe then they’ll start throwing out squatter laws.
Yeah. And that’s why. I mean we’ve had to call the sheriffs I think once or twice to help get people out on the short-term rental side. Typically, by the time when we tell them, “Hey, we just called the sheriffs, it’s time for you to go.” Usually they just leave on their own. But we’ve never actually had to physically remove someone from one of our properties before.
So, fingers crossed I never have to. But yeah, I’d be, I guess guessing a little bit on what I’d be doing in that situation.
Yeah. So, with that, was that during their stay and you had them leave early because they were in a party or was it because it was past their checkout and they weren’t leaving?
One of each, right? So, we had one guest, I think I told the stories like these two crackheads, like actual literal drug users. I don’t say crackheads in a funny way, but they were actually doing crack cocaine in our property. But we had to call them because we knew who they were, we wanted them to leave. And then, the second time was someone that just stayed exceptionally late and they weren’t super responsive.
And then, “Oh, I’m sorry, we overslept,” or something like that. So, those are the two situations. Never for a party. Most of our properties are smaller, especially the ones in Joshua Tree, so they’re not even meant for a party. And then, our cabins in Tennessee, I don’t know, it’s mostly families and grandparents and grandkids. So, we’ve never really had to deal with parties too much.
Okay. Our next question is from Alfonso. “If I take out a HELOC on my primary residence, but I don’t access any funds yet and just have it open, what happens if I decide to move? If I choose to access my line of credit, does the lender ask if it’s still my primary residence? Will the lender close the account?
Can someone clarify? Thanks in advance.” This is a great question. And our friend Tyler Madden, who’s been on the podcast before has actually talked about how he did this with his primary residence. He was getting ready to purchase a new house and so he went and got a HELOC on his primary residence that he was going to keep a rental property.
And he did this before he closed on his new house. And he actually used the same mortgage broker. I have a friend who’s in a situation where they have a duplex or house hacking and they are buying a new primary. And they need the cash from the duplex to put towards their down payment. I told them about what Tyler did as to he actually just got the line of credit and they could draw off the line of credit and they could use that for their down payment on the next property.
Tyler had said he used the same mortgage broker to do his line of credit and to do his new mortgage. So, this broker was fully aware that it wasn’t going to be his primary anymore, but it was right there in that time, which was completely legal to go and get a line of credit. And so, they worked out the closing. So, he closed on the line of credit before he closed on the mortgage of his new property. And having that kind of timeline is important.
And so, I have a line of credit, but they’re all on investment properties. I’ve never actually done one on my primary residence. As far as I know when you pull off a line of credit, it’s usually like a form you fill out that you just send into whoever your loan officer is and say, “I want to take $20,000 and please put it into this bank account.” And then, you sign it or you get a checkbook, you get a regular checkbook and you can literally write money or write checks from your line of credit instead of a bank account. So, you could always ask for that option too when you go and get the HELOC.
And then, there’s nobody asking you if you have a renewal term, like say your HELOC is up in three years and they go to renew it, they may ask you then if that is still your primary when they go to actually renew the line of credit.
Yeah. And so, a HELOC is what you’ll hear is some people refer to it as a second mortgage. So, in the same way that when I look up county records for a specific property, you can see who has a lien, who has a mortgage for that property, right? Like Bank of America has a loan against 123 Main Street for Tony Robinson. When you go out and get a HELOC, and I’m almost certain that this is correct, they’ll also technically put a lien on your property as well. So, say that you do go to sell Alfonso and the same way that your title or escrow company or whatever kind of entity you’re using in the state that you’re in, they’ll go and check to see what are all of the liens against this property.
They’ll see your primary residence and then they’ll see your… I’m sorry, they’ll see your first mortgage that you used to purchase the property. Then, they’ll also see your second mortgage or your home equity line of credit. So, they’ll pay off both of those with the proceeds from the sell before they release any funds to you. So, it couldn’t be like, “Hey, I’m going to go out and get this HELOC against my primary, then I’m going to turn around and sell it.” And then, the bank that gave the HELOC wouldn’t be aware of that.
Your title escrow company will make sure that it gets paid off. So, that’s how it works in the backend. And that’s the whole reason why you use these third parties like title and escrow to make sure all the paperwork is good. Because say that you tried to do this outside of title and escrow, there’d be no paper trail of this lien against the property. So, the banks are going to want to make sure that they’re protected.
They’ll have some kind of mortgage security document that you’re signing that ties the debt they gave you to the actual property. So, to answer that first part of the question, if you sold the property, your HELOC should get paid off during that sale process and then you walk away with any proceeds there afterwards.
Our next question is from Graylin Herd. “Hey, Rookies, I hope everyone is doing great. I’m closing in on renting my first property. And with the current state of the world, it’s stressing me out what I should charge as my security deposit and clauses I should implement to protect me as an owner. Everything in my property will be brand new and I put a lot of hard work and money into it.
What you charge for security deposits and does this only cover damages? Are you charging your charge first and the last month’s rent at the beginning of the lease? And if so, this is separate from the security deposit, correct? What service do you use to run background and credit checks on applicants? I have heard rent prep and my rental are good.
Thoughts? Thanks for help in advance.” Okay. So, let’s go back to the beginning and let’s start there. How much should I charge for a security deposit? The first thing that you need to do is know what you are allowed to charge per your state laws.
A really, really great resource is Avail.co. Okay. They’re actually a property management software and they have, if you go to, I think it’s tools and resources, I’m trying to look right now. It will actually tell you what your state laws are for each state. So, you click on your state and then you can go through and see if there is a security deposit law, if there is you have to charge a certain amount or not.
So, in New York State, you can only charge equal to one month’s rent. So, if they’re renting the unit for 750, you can only charge 750. You can’t charge any more than that. You also in New York State cannot charge for last month’s rent. So, that’s another thing that you should look for in your landlord laws.
So, here in New York State, when somebody moves in, you can charge them the first month’s rent because they’re moving right in and then you can charge them security deposit equal to one month’s rent. You cannot charge anything more and you cannot charge last month’s rent. Okay. You can charge for pet fees, different things like that upfront that are non-refundable. So, we do a $300 non-refundable pet fee at move-in, if you are bringing in a cat or a dog to the property.
Let me just ask a few questions on that piece. Right. So, you said that you charge a $300 pet fee. How did you land on 300?
When I started as a property manager, it was 200 and for the first ever building that I managed, that’s what they did. And then, it was another $10 per month. And I quickly realized that was not really enough to cover some of the wear and tear that pets did and that people were actually willing to pay more. So, over the years it’s just increased to 300. So, it’s $300 no matter how many pets you have.
So, if you have a cat and a dog, it’s $300 and then it’s $30 per month per a pet. So, if you have two dogs, it’s 60. If you have two dogs, one cat, it’s 90, but we do cap it at three pets. And then, for some properties it’s even less than that. And then, also you have to know what the town codes are too. Your town may even cap how many pets that somebody can actually have living in a household too.
Is there any level of competitive research that you’re doing to gauge either the pet deposit or even just the general security deposits? Or are you just going based off your knowledge of your own properties?
Well, the security deposit, no matter what for everybody in New York State has to be one month’s rent.
Oh, so it can’t be less or more?
I mean it could be less, but I’ve never ever seen anybody charging less ever. That is 100% like the going rate is one month’s rent. Yeah. And then, as far as the pet fees, I haven’t done a ton of research on that to be honest. But we’ve never had anybody say, “No, never mind, we’re not going to rent it.”
But every once in a while look at what’s listed in the area. And I mean recently it’s actually very hard to find listings in the area because apartments are just going so fast. But usually around the 200 to 300 mark is what I’ve seen in there. I mean before I’ve seen even $500, but then there’s no monthly additional fee too. So, there’s a change in what the upfront fee is and then what the monthly fee is.
And a lot of times it’s easier to have a higher monthly fee because that first upfront fee, sometimes it’s hard for somebody to come up with the first month’s rent, the security deposit, and that large chunk of money for the pet fee too.
Okay. So, let’s see. The next question was does this only cover damages for the security deposit? So, that’s what you would put into your lease agreement. And one thing I highly recommend is putting into the lease agreement what somebody will be charged. So, actually itemizing like here is your checklist of things of how we want the apartment to come back from us… come back to us when you move out.
So, it’s broom swept, it’s the fridge is cleaned out, the oven is clean, there’s no holes in the walls. And then, you start putting, if we need to pay our cleaner to clean the oven, it’s a $20 charge. If we have to have somebody clean the fridge, it’s $10. You itemize what those cleaning charges will be and do the same for any repairs that are the tenant’s responsibility. So, if there’s a hole in the drywall, what’s going to be the charge for something like that?
If the faucet is ripped off or there’s other damage that can be done, there’s tears in the rug. I once had a tenant that cut a piece of the rug out of the closet and then put it where his dog had ripped up the carpet. We wouldn’t notice that he put a patch in the carpet.
You got to give him points of being creative though. That’s funny.
So, try to itemize everything specifically that they’ll be charged for. Going back to New York State. So, New York State, you actually have to offer your tenants a pre-move-out inspection two weeks before they actually are moving out of the property. So, they give their 30-day notice, you send them a letter saying, “Hey, you are entitled to a two-week pre-move-out inspection. You can opt out of it if you don’t want it, but it’s here.”
And the purpose of it is so that you can show tenants, you’ll be charged for this, you’ll be charged for this. And it gives them two weeks to go ahead and repair it themselves. And I say that with the air quotes or to hire a contractor to go ahead and do the repairs before their move-out inspection. So, one downside to that is tenants will go and try to make the repairs themselves and it just ends up being even worse than what it was. But this is something by law you have to offer to let them know.
And then, other times it turns out great, the apartment is turnkey and ready to go when they move out and you can get it rented right away. So, to wrap it up, make sure you’re itemizing what the charges for a security deposit could be as far as using it for them to cover rent that was unpaid. Be very careful with how you word that in your lease agreement because you don’t want a tenant to give a notice that they’re moving out in 30 days and they just say, “You know what? We’re not paying less rent month. Just put the security deposit towards it.” Well, now you don’t have a security deposit to cover any damage.
So, usually in our leases we put the security deposit cannot be used as last month’s rent. And then, obviously, if they don’t pay and the apartment is perfect condition, we will apply the security deposit to that last month’s rent. But you want to make sure you have that security deposit available for damages. So, try to get them to pay any rent that they are… that’s due before they move out. Okay. Next part of this question, Tony, I feel like these are all geared towards me.
What service do you use to run background and credit checks on applicants? So, pretty much any property management software will have this integrated into their software that you can use. TenantReports.com is one that’s separate from any kind of property management software. So, you can just go in there and you could use that to screen your tenants. But then, if you use AppFolio, Buildium, Avail.co, Rent Ready, they all have background and credit screening services built right into them that you can use.
As far as the rent prep and my rental I’ve never used those ones, so I’m not sure. But I’m sure they’re all pretty similar too.
Yeah. And that’s just one thing to add, right? I know in California. This is from the very brief period of time that I worked at a property management company here after college. There were even I think limitations on what kind of things could disqualify someone versus something else. I guess is there any information that you can use in someone’s credit report, background check, et cetera, to disqualify them from being a tenant?
Or are there certain things that are protected that you can’t use? How does it work in New York? And I’m sure it varies from state to state.
Yeah. It does vary from state to state. In New York State, you can’t deny someone because they have an eviction on the record. That can’t be the sole reason, which sounds ridiculous. I know. But yeah, there’s definitely different things.
And then, there’s also Fair Housing Laws across the board where you can’t deny someone that maybe they have the same exact everything, but one person has a 700 credit score and the other person has a 550 and you end up going with the person that’s 550. Okay. Then, the next time, which I don’t know why you would do that, but just say you do that person that’s 550. Then, the next time you rent as the similar unit, whatever, maybe it’s the upstairs or something, you deny someone who has the 550 or whatever. You have to be very consistent as to what your criteria is.
So, we have a checklist and it’s baked right into our software where this is our minimum credit score. This is our minimum debt to income. You have to make at least three times of what the rent is for the month. So, having that all listed out to protect you from Fair Housing Laws that you are being very fair and not discriminating when you’re screening tenants. And that would be the biggest issue.
There are so many free resources to know what your landlord laws are, the Avail.co I mentioned earlier, but also if you go to your local housing authority. So, even if you just Google Buffalo New York Housing Authority, some will come up. So, homeny.gov is one that’s in New York State. Belmonthousing.org is the actual Section 8 voucher association for Buffalo.
So, a lot of times they have free classes, they have handbooks or the classes are like $10 or very low cost. And since COVID they do a lot of them virtual. Now, you don’t even have to go to them in person, but they’re a wealth of knowledge. They’re usually an hour long and you just get like, “Here’s what you need to know to be a landlord in your state.”
Yeah. When I worked at that property, they were an all-in-one house anyway. They were one of the largest department complex owners in this little pocket of California that I’m in. And during our initial training process, they talked about what you said about the fair housing and all this stuff, and they said that there were actually people out there. I don’t know if these people were attorneys or just professional tenants. But they would basically look for these big apartment complexes that were violating some of these Fair Housing Laws.
And literally just trying to apply, not even with the goal of getting the apartment, but just to try and catch some of these bigger apartment complexes and companies like red-handed. So, as the leasing agent, we had no discretion over approvals. We would literally just take all the information the person put into their application, key it into the whatever software that we were using, and it would spit out either a yes or a no. And once it happened, we had no control over trying to fluff the numbers or change this or make it easier. It was all automated with no human interaction outside of us just keying in the information.
Okay. Mantas has a question about an LLC. “Can you hire a real estate attorney in order to place your properties under an already established LLC? Does the attorney need to be located in the same state as the property? For example, if my property is in Oregon, does my real estate attorney have to be in Oregon even though I currently live in Maryland or could I do it with a Maryland real estate attorney? Much appreciated.”
So, what this question first, let’s address what it means to actually place properties under an already established LLC. So, you’ve already created your LLC, you’ve filed the documents for it and it’s an operating company and you want to put your properties in this LLC so that they are no longer owned by you personally and they’re now owned by the LLC that entity. So, in order to do that, you have to change the title, you have to change the deed of the property to state that the owner is the LLC and now they are under the LLC. So, in order to do that, usually you’d hire an attorney to go ahead and do a quick claim deed is what I’ve done and deed it from your name to your LLC. And there’s no title work or anything done because you were the previous owner and now it’s going into an LLC that you own too.
And you already had title work done when you purchased the property. And if you as the owner didn’t change anything, then there’s no reason to go ahead and do a new survey and to do the title work again. So, it’s just called a quick claim deed. As far as having that attorney do it in the state that the properties are in or the state that you live in. Another question I would ask is what state is the LLC in?
So, is the LLC the same as your properties or is the LLC the same as where you live too? So, Tony, I honestly don’t know the answer to this question as to where the attorney has to be from.
I think the answer is that it doesn’t even necessarily have to be an attorney. Right? I’ve filed some of these changes myself just because you can just walk into the county and say, “Hey, I need to update the deed for my property. What paperwork do I need?” And I know here in California, or at least in the county that I live in, I need what’s called a PCOR form, which is like primary change of ownership form. And then, I also need to update the grant deed.
And as long as I fill out those two pieces of paperwork and I get them notarized, I can myself turn those pieces of paperwork in. I’ve had my attorney do it for me here in California. I just had my escrow company do it for me here in California. So, I’ve had three different types of folks manage that process for me and only one of them was an actual attorney. So, I think the question is does it even have to be an attorney?
Could you just go to the county yourself and fill that paperwork out? But I would think as long as the attorney is at least versed in what the correct paper trail is for your state, for your county, for your city, it doesn’t really matter where they’re at or where they’re located.
Yeah. And I think that right there is the key point is to maybe that the only reason you want an attorney that’s in the state where the properties are is because the actual work to put them into the LLC is to do the deed process do that little bit of title transfer. And so, just having an attorney that already knows how to do it and that state actually might be way cheaper too than hiring an attorney where you live and them just figuring out that process, maybe just an extra step that they’ll bill you for that.
But actually, let me ask you because everything has to be done through attorneys in New York. So, do you have to hire an attorney to fill out like a change of ownership paperwork or could anyone do it?
I honestly don’t know because I’ve just always had my attorney do it, but there’s nothing on the paperwork that says my attorney information on it. It’s the seller’s name, the owner’s name, the property information, the description. So, if you already have the existing deed, I think you can probably just go right down to the county clerk office and file yourself to change the title.
Last question we have here is from Carrie Molina. “I just purchased a multifamily home and one of the units is going to be available this month. How do you balance upgrading with just renting it out quickly? Should you do your upgrading in the beginning or try to recoup some of your down payment first? Trying to see if I should upgrade this kitchen and bathroom and then raise the rent or just rent it out right away to get some reserves.
If I renovate any recommendations for that ugly bathroom grout, I might be able to raise rent only $75 to a $100 after renovations. Thanks in advance.” So, I’ll tell you a little funny story about that ugly grout. I actually-
Yeah. I did a property over COVID with my son. He was I think six at the time. And so, we, me and him rehabbed the whole property and one thing that was not in the budget was in the kitchen, the backsplash to redo it. The tile was in great shape, but it just had these gross yellowish grout lines throughout the tile in the back splash. I actually ordered I’m pretty sure it was on Amazon, like a grout pen, and it was almost like a white mark.
Like a Tide pen or something? Oh, yeah.
Yeah. Yeah. It was like a Tide pen, but it was white-out and we just went along and we did that along all of the tile lines to make them white. And it actually turned out so beautiful and it was way more cost-effective than actually going in and ripping out all the tile and putting it back in. But that actually worked really well.
So, it depends, I guess as to how extensive maybe it is and how you want to do where this was not an area where we were doing really nice upgrades in the property because we just couldn’t get that much rent for it. So, there was a little DIY hacks that we did in the property to still make it look really nice, but not going over budget where we couldn’t recoup what we could get in rent for it. With this one, let’s see. Should you do the upgrading first or rent it out first? Tony, what do you think? What would your answer be?
I mean, I always want to try and get the rents, right, especially if the unit is vacant. In my mind it makes sense to go ahead and do those upgrades now. Still to Ashley’s point, you don’t want to over upgrade and invest more money into the property, then you’ll be able to get out as rent.
But if the property is vacant, use that as an opportunity to increase those rents, even if it’s only a hundred bucks, if you’re able to start doing that across, we don’t know how many units it is, but say you’ve got a small multifamily with four units, four times 100, it’s an extra 400 bucks per month, you’d be able to pull in by doing those as each unit turns. So, assuming you have the capital, I would prefer to do it now as opposed to waiting. But what’s your approach, Ash?
I would just say run the numbers and look at almost what your cash on cash return is based off getting $75 to a $100 more. So, if you’re going to be dumping $30,000 into renovating the, what was it, the kitchen and the bathroom, then only getting $75 to a $100 more might not be worth it for you. But if it’s only going to cost you a couple $1,000 to do these simple things that will add that a $100 value and rent, then yes, go ahead. So, I think take a look at the numbers and if they make sense or if you’re actually getting better value of keeping it at what it is now and not even doing the renovations. Okay.
Well, thank you guys so much for joining us for this week’s Rookie Reply. If you have a question that you would like answered, you can go to biggerpockets.com/reply and put your question in there. You’re always welcome to leave your questions in the Real Estate Rookie Facebook group, or you can send us a DM on Instagram at Wealth from Rentals or at Tony J. Robinson. Thank you guys so much for listening, and we will be back on Wednesday with a guest.
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In This Episode We Cover:
- What to do when your tenant leaves in the middle of their lease
- Using a HELOC to buy a new home and what happens when you move
- Security and pet deposits, plus how much you can charge for each
- Best tenant screening and background check software for rookie landlords
- Moving properties into an LLC and whether you REALLY need an attorney to do so
- Rental renovations and when your upgrade ISN’T worth the cost
- And So Much More!
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.