Remember those “Spot the Difference” games that used to be printed in the backs of magazines when you were a kid? I remember them from Highlights and Electric Company, and they’re still frequently featured in the comics pages. You get two seemingly identical drawings, perhaps of a woman in a silly hat or a monkey piloting a spaceship, and you try to pick out the subtle differences. I was always terrible at it (“Maybe the first monkey is confident and the other one realizes he’s in over his head?”), but it is an important skill to have in the real estate market. After all, a house you buy to fix-and-flip and one you buy to rent out may seem like they present identical projects, but they can be very different properties with different needs.
A property that you intend to turn around and put back on the market will often require a lot of renovations. A house that is going to be rented generally doesn’t require as many upgrades, and there are reasons for putting very different levels of work into each property. That said, you still need to put some work into your buy-and-hold project, which is a great use of an equity-based hard money loan. Understanding what is needed and what is not is a great first step towards making your buy-and-hold loan a successful investment.
Why Rentals Require Less Upkeep
When you rent a car, you don’t picture yourself turning it over to your daughter on her 16th birthday, presuming you aren’t a car thief. The same goes for rental properties. A tenant generally isn’t thinking long-term when they sign a lease. They’re usually signing a lease to get them through grad school, or the first couple years of work, or a temporary posting in the Anaheim office. Therefore, their expectations are somewhat lower than those of a potential homebuyer.
There are also financial considerations. If you are flipping a house, remodeling the kitchen to make it eco-friendly and beautiful can add huge resale value and ROI. This is less true with a rental. The amount of work you put into a rental home, when you consider the cost of labor and materials, can’t be fully reflected in the rent. It can certainly justify raising the rent, but it usually takes a very long time to recoup an investment of that level, and if you are only planning to hold onto the property for a few years, a major upgrade probably isn’t worth it.
The Best Repairs and Upgrades for a Rental Property
That said, your rental property may still require some upgrade in order for it to remain a competitive option on the rental market. Remember, one terrible review or truly unhappy tenant can impact all of your business. You also don’t want to property to remain unrented because it fails to compete with other homes on the market. So while you don’t want to blow your budget, you still want to make the space feel like a home. There are a few things that you can do that fall between “full renovation” and “nothing at all” to ensure your property is appealing to renters without breaking the bank:
- Upgrade kitchen appliances: A stainless steel dishwasher, especially if it is low-flow and ecologically friendly, can be a major pull. Especially in older neighborhoods, where fewer rentals boast these modern appliances, a dishwasher can help your property stand out from the pack. A new refrigerator or oven can also go a long way towards enticing someone to rent. For a rental, there may be no need to have marble counters, but if you have the option to add counter space – possibly an island – that can be a wise choice. People don’t want to cook in a crowded space, even in a short-term rental. A welcoming kitchen can make the whole house feel more welcoming.
- Add new paint and a solid yard: Remember, this is someone’s home, if not their house. Curb appeal is just as important. Don’t let potential tenants drive away because the paint is peeling from the window shutters and the yard is in desperate need of upkeep. A new coat of paint shows your dedication to maintaining a quality home. As for the yard, this being California, replacing your lawn is always a good idea. A drought-resistant yard makes the house more ecologically-appealing and it requires far less maintenance.
- Install new bathroom fixtures: Never underestimate the power of a few adjustments. Adding a low-flow showerhead saves you money and creates appeal for eco-conscious renters. Similarly, a low-flow toilet can be had for just a couple of hundred dollars at the far end. If the sink or vanity is outdated, a replacement can make the entire bathroom look more modern. Even a new medicine cabinet can add inexpensive appeal that makes a place feel more like home.
A Buy-and-Hold Loan Can Boost Your Budget
If you’re working with an especially tight budget for renovations and upgrades, some of these ideas may seem out of reach or like an unnecessary expense. That’s where Socotra Capital can help. Having an equity-based hard money loan from Socotra Capital, California’s premier partner for renovators, can help you accomplish these projects in no time. With a quick approval process based on the equity in your project, not your credit history, you can get your buy-and-hold loan and get to work.
The buy-and-hold strategy is a great way to build on your investment. You can make your money back by renting out the property before ultimately putting it back on the market at a later date. A buy-and-hold loan from Socotra Capital ensures you have the capital to make your renovations and hold the property for long-term cash flow. With a loan, you can help make it a home where renters want to stay and pay. A few repairs here and there can make all the difference.
Your real estate assets are your best investments for the future. At Socotra Capital, we’re proud to be the premier direct hard money lender for California real estate. Contact us today to learn more about how we can help.