While several factors must come together for a property to provide consistent cash flow, none is more important than the renovation, which sets up the property for long-term success. The renovation is the most important part of our process to accomplish our Mission Statement of providing sustainable cash flow. While it is easy to be captivated when evaluating the sheer purchase price vs. cash flow numbers of a deal, if you are not considering the overall condition and age of major systems of the home, those projections are likely unachievable without a solid rehab designed to reduce vacancy and maintenance. Equity achieved by doing the bare minimum renovation will almost always be taken back in the form of reduced cash flow through excessive maintenance and higher vacancy. The reason we say higher vacancy is because your home will be competing with better homes in the area–we make sure your home is putting its best foot forward to attract qualified tenants. Good homes attract qualified tenants, dated homes attract what is left over.
If you are going to leverage a home, you are leveraging everything in that home, thus it makes sense to purchase a well renovated home where deferred maintenance items have been addressed. A $6,000 roof on a leveraged purchase only cost you $1,200 with your 20% down purchase. A roof installed after your leveraged purchase will not only cost you the full price out of your pocket, but also property management maintenance fees too.
Our renovations focus on increasing cash flow by addressing deferred maintenance, replacing items on the back end of their lifespan, adding upgrades that are more tenant-resistant and providing a great-looking property that prospective tenants will not want to move into, but stay while they are in the tenant stage of their life.
Here are just a few standard items addressed in our rehab that reduce maintenance and vacancy:
High-Traffic Areas: We use vinyl plank flooring instead of carpet in high-traffic areas. While the cost of vinyl plank is greater, it will last much longer than carpet as it is highly water-resistant and durable. Investor-grade carpet often times is ruined on the first tenant turn; one fruit drink or wine spill and the carpet is finished.
Roofs: If a roof appears to have less than 10 years of remaining lifespan, we replace it. This is the largest capital expense you will face. Even with our volume discounts on shingles and wholesale pricing from our roofing vendors, roofs cost about $150 a square to install. With an average roof being 35 squares, you are looking at an approximate replacement cost around $5,200 to $6,000.
HVAC Systems: Because Memphis and Little Rock are located in warm, humid, sub-tropic areas, A/C systems are run far more frequently than furnaces. We evaluate AC condition upon acquisition, but typically replace around the 7 year mark. Because of being located in a sub-tropic region, furnaces last much longer than AC units. Upon acquisition, we consider the condition of the furnace to determine whether or not to replace. The average cost to replace an AC & furnace is $2,500 and $1,750 respectively. (Updated 2022)
House Exterior: Curb appeal is critical to attracting an qualified tenant to your home quickly. We improve the exterior through paint, siding repair, landscaping and several other critical improvements. We look at external components that are past their lifespans and replace them so that you are not paying for it later. Damaged fences are repaired or replaced and low-lying tree branches that could fall off and hit the house are also removed. Front yards are not left bare, rather a green space solution is performed. Shutters are added were applicable. Front and back porches are pressure washed, along with walkways to the front door are pressure washed.
Electrical Panels: Fuse boxes must be updated to breakers as the power usage is significantly increased these days with laptops, smart phones, tablets, printers, flat screens, etc. in multiple rooms. Updating the main electrical service panel not only saves you from future capitol expenditures, but prevents disruptions with your tenants day to day living. Safety hazard panels such as Federal Pacific Panels whose breakers are known not to trip are also replaced. GFCI receptacles are installed in wet locations along with outlets and switches updated to white, which matches are paint scheme. Low lying electrical lines are addressed. (Updated 2021)
Plumbing: Plumbing will be your # 1 expense as a real estate investor. To minimize this cost in most all cases, we replace shower heads, faucets, valve connections, p-traps, older washing machine and exterior valves and older lavatories. The largest plumbing cost is the main drain from the house to the city sewer system. On every older home that may have cast iron or terracotta pipe as main pipe, we run an camera to ensure the integrity of the main drain system. Hot Water Tanks that are 7 years or older are replaced; replacement cost of Hot Water Tanks is approximately $1,000. Per local code, the first 18″ of the supply lines in homes with a crawl space are insulated to help prevent from pipe freezing. (Updated 2022)
The above items are great for reducing maintenance, but we also add features to improve the look of the property so that tenants will see it online, schedule an appointment, and want to make that house their home. Some of these items include:
Kitchen Updates: We bring back to life outdated kitchens with updated countertops, often times granite, along with high quality kitchen faucets, updated or new cabinets, brush nickel hinges and knobs, new flooring, new lighting fixtures, new sinks and new dishwashers (where applicable). The kitchen renovation is critical towards attracting qualified tenants quickly, thus reducing your vacancy cost. Flooring is typical vinyl plank as that surface looks great and durable.
Bathroom Updates: Like our kitchen updates, our goal is to provide a clean look, which is accomplished by replacing damaged tub & shower surrounds, vanity replacements, updated lighting and new mirrors. We reduce maintenance through new faucets, replacement of old lavatories and supply line connections.
Ceiling Fans: The industry standard here is to add the cheapest fans offered by big box retailers. We install a higher grade, aesthetically pleasing fan to the main living space and master bedroom. We do this as part of our overall process of giving our home an edge over competing rental homes in the area to place a qualified tenant quicker.
The items above are just a few of the efforts we complete during our renovation to maximize your cash flow through reduced maintenance and vacancy. As you browse our site, see if you can spot other details that make our homes stand out.