Monday, May 11, 2015

Rental property repairs, updates, and remodeling

We picked up our first rental property in March.  Since the property was built in 1964 and had never been previously updated, we needed to do some work to freshen up the place.  The color of the paint on the walls was very dull.  The carpet had deep and permanent stains.  The stair railing was falling apart and not up to code.  The old windows were worn out and did not have proper heat insulation.  The lights were old and not energy efficient.

For the last 2 months, we have worked hard on remodeling and preparing the place for tenants.  Investing money into a property helps to increase its value and rent-appeal.  It has been very time consuming interviewing potential contractors as well as getting multiple quotes on work that needed to be done.  I’ve also put in some sweat equity by doing some of the more manageable work myself.   

Before finalizing the purchase of our rental property, we had a general contractor (recommended by our agent) give us an estimate on the costs of all remodeling work.  The estimate was ridiculously high: $44,050.  This estimate was for the work to be completed in 5 to 6 weeks, and did not include the costs of purchasing appliances we wanted to add (new faucet, sink, electric oven, kitchen range hood, and refrigerator). 

The benefit of going with a general contractor is that they will take care of every little aspect of a home remodel.  They will coordinate all of the different types of work that need to be done, including electrical, dry wall, painting, plumbing, carpentry, cleaning, etc.  And most importantly, they will make sure everything gets done on time.  The downside of going with a general contractor is that they mark up all of the work significantly.  $44,050 was just way higher than we wanted to pay to have this work done.

I am glad that we have a few friends that currently do real estate investing.  They have been able to provide me with a few good references for contractors.  I also personally know a good plumber and electrician.   We’ve also been able to find a lot of quality workers who advertise their services on Craigslist.  Getting several quotes from different contractors can be very time consuming, but can also save you a considerable amount of money.  By the time you get 3 quotes, you will get a good idea of market rates. 

After getting a reasonable amount of quotes, we had our real estate agent negotiate a $5500 credit towards our purchase price to help offset any remodeling costs.  After closing, we immediately started coordinating with our contractors to get everything remodeled or upgraded. 

Don’t forget that travel costs such as driving to meet a contractor, performing work on your property, and going to the hardware store can all be deducted when it comes to tax time.  Repairs that are considered ordinary and necessary such as repainting, cleaning, plastering, and replacing broken windows are all deductible.  Payments made to contractors can also be deducted as a rental property expense.   

We bought all of our appliances from appliance warehouses that advertise on Craigslist.  You will often find lightly used, discontinued, or refurbished appliances that sell for significantly cheaper than their brand new equivalents.  Most of these warehouses offer 90-day warranties on their appliances and prices can be negotiated.  We found a brand new but discontinued electric slide in range for $500.  We found a brand new kitchen range hood from a wholesaler for $375.  We found a refurbished refrigerator for $300.  Buying these items from big box chain stores would have easily cost us 2 to 3 times as much.  My landlord friend only buys used appliances for all of his rental properties.    

Our stable paychecks as well as our 50% savings rate helped give us a healthy cushion for taking on the remodeling.  One of my best friends has been mentoring me and answering my many questions on how to get our property ready to rent.  His guidance has been extremely helpful during this process.

The final cost for all upgrades, remodeling, and appliances was $13,211.56.  Factoring in our $5,500 credit, we spent a total of $7,711.56 out of pocket to get our condo rent ready.

Here are some pictures of our remodel:
The 1960s tiny oven, cooktop, and kitchen range hood had never previously been upgraded.
We decided to knock out the overhead cabinets to open up the view from the kitchen. 
The new kitchen range hood and oven match the new quartz countertop nicely.
The previous stair railing balusters were too far apart and not up to code.  
We found a company that refurbished our existing iron railings and welded on new balusters.
The paint in this room was just so depressing.  We also got rid of the ugly popcorn ceiling.
The new light gray paint really brightens the room.  The dark carpet helps to hide wear and tear.
Crazy weed garden: nothing a little Round Up and a machete couldn't tackle.
In another post, I will detail the process we went through to screen tenants and get our first rental property rented out!

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