In speaking to the investors we encounter throughout the Turnkey Business, there is one thing they all want- cash flow. We all want as much cash flow as we can on our properties, but not all of us gets it. Sometimes nothing more than bad luck is the reason for poor or negative cash flow. If maintenance is the reason for cash flow going the wrong way, it is certainly possible that the home was destined from the start for high maintenance cost. We as investors fall in love with Pro Forma’s when we see a ROI that we like.
The problem with falling in love with a Pro Forma is that they do not differentiate between a well renovated home with maintenance reducing upgrades and homes that have the bare minimum and obvious deferred maintenance. Below are just a few things you should look for when considering the purchase of a Cash Flow Investment Property. These upgrades will position your property on the front end by reducing maintenance and tenant turn costs.
Ceramic Tile: This should be used in kitchen and baths rather the vinyl flooring; some older bathrooms have porcelain tile, which is fine. Vinyl floor is not nearly as durable; imagine a tenant pushing a piece of furniture across it and it rips. At that point, anything but replacing it, will not look right. Don’t get creative when selecting ceramic tile, make sure you use a common stock item from your tile distributor.
Vinyl Plank Flooring: Much better choice than carpet in high traffic areas. Typically investor grade carpet is simply not durable enough to withstand several tenant turns. A messy tenant can ruin a carpet in the first year of their lease—imagine Kool Aid split on the middle of the living room floor. A situation like that can easily ruin a cheap carpet. Vinyl Plank Flooring is easy to repair, very water resistant and will have a longer lifespan, plus it will make living spaces look larger than they really are. This will certainly reduce your make ready cost when a tenant vacates your property.
Exterior Buildings: If they are raggedy looking, fix them up or tear them down. In our market the Landlord Law says the entire grounds must be maintained, this would include exterior buildings. If you are obtaining property through financing, it would make sense to do this on the front end so that you are not coming out of pocket when the day comes to address this. Buying a home with a worn down exterior building is deferred maintenance staring you right in the face!
Electrical Service Panels: You would be surprised how many properties I have taken over to manage from investors who bought a “Turnkey Home” where the electrical panel was not updated from fuses to breakers. If you are buying a home with a fuse box, ask the seller to take off his mask, because he is robbing you. My first home I ever bought as an owner occupant had fuses instead of breakers. We constantly had to swap those things out. Fuse boxes are not designed to run laptops, charge phones, 60” HD TV’s (and yes, your tenant may pay late each month, but they will have a giant HD TV) and every other new ‘must have’ gadget. The cost to update a fuse box to a break box is around $1,100.
Appliances: Some landlords/Turnkey Properties would disagree, but we give our tenants dishwashers. Keep in mind we operate in a space of $895 and up and often times, those tenants expect it. We replace older dishwashers on the front end with brand new—our cost is $220 to install new, so it is cheaper to replace than to repair. If you do not want to maintain appliances, then remove them. In our area, the Landlord Law is clear, the landlord must maintain what is furnished in the house.
The upgrades we do to our homes are actually much longer, but the things I listed above are some expensive repairs I see when I take over management for investors who bought homes from sellers that ignore these obvious deferred maintenance items. Remember, positioning your home for success on the front end will increase the opportunity for the cash flow you desire when you’re purchased the property!
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