When NOT To Do Capital Improvements On Your Rental Property

WHAT ARE THE BENEFITS AND RISKS OR MAJOR PROJECTS WHEN UNITS ARE OCCUPIED?

As a property management company, one or our primary responsibilities is to help our clients add value to their rental properties. Making improvements to rental units is the best way to attract the most qualified tenants and increase the rental price. And with all that at the core of our operating principles, Nexus will NOT do any capital improvements to occupied units.

Capital improvements include any major renovations to the structure of the property for the sake of increasing the value. Replacing floors, painting walls, upgrading electrical systems, and changing plumbing, all fall under this umbrella. Again, increasing value is what Nexus is all about, but the right time for any of these heavier lifts is when units are fully vacated. To attempt a major project with tenants in place creates significant inefficiency and liability issues.

LEARN MORE: MORE ON CAPITAL IMPROVEMENTS

2 SIMPLE REASONS NOT TO ‘IMPROVE’ OCCUPIED UNITS

It is essential to keep up with maintenance needs throughout the life of your property and a good property owner will address maintenance service requests promptly and regularly. These routine maintenance needs are the key to keeping your property in good shape and keeping your tenants happy. If tenants claim they need a capital improvement to make them happy, you’re going to need to tell them ‘no’. There simply is no good reason to do something major while a unit is occupied, and two good reasons not to:

First, the tenants will be in the way. Contractors don’t want to deal with people and having to work around them, their schedules, and possibly their belongings.

Similarly, and secondly, this could also lead to liability issues. Someone could potentially get hurt or materials could be damaged. Either contractors will need to continually transport any expensive machinery or risk theft. There are so many potential negative outcomes if property owners try to make major changes while tenants are in place.

LEARN MORE: THE BEST REAL ESTATE INVESTORS MAXIMIZE VALUE DURING TURNOVERS

UNDERSTANDING THE RHYTHM OF RENTAL UNIT COST, PRICE, & VALUE

As has been mentioned before, maintenance is the number one point of friction between property owners, tenants, and property managers. Maintenance needs can be expensive and the ultimate decision makers are the least impacted by those needs in the short term. With that in mind, it’s worth looking at the cyclical nature of a typical rental unit:

Stage 1: VACANCY = THE BEST TIME TO ADD VALUE

When a unit is vacant, you can hire whomever you wish to make capital improvements. For example, at Nexus, we highly recommend a fresh coat of paint during all turnovers. This is the time to replace a floor or make other upgrades. It will be costly but it will also lead to increased rental prices and long term value.

LEARN MORE: THE MOST COMMON MISTAKES LANDLORDS MAKE DURING AN APARTMENT TURNOVER

Stage 2: EARLY OCCUPANCY = THE BEST TIME TO ESTABLISH TRUST

You’ve made upgrades during vacancy and now you have a new tenant paying $200 more than the previous tenants were paying. That’s what you were aiming for and over time you’ll turn a profit on that investment, but don’t fall into the trap of thinking your maintenance costs are going to cease. Because your tenants are now paying at the top of the market, they’re going to expect the unit to be top of the line. It is very normal for new tenants to reach out with many service requests over the first couple months. Landlords feel like the tenants are ungrateful for the upgrades, as if the tenants know what the unit used to look like. Don’t fall into the resentment trap, but instead think of this as the time to establish trust with your new tenants. They want to feel as comfortable as possible and it will cost you some more in maintenance expenses, but those costs are worth the long term value.

LEARN MORE: MAINTENANCE COSTS ARE THE #1 POINT OF FRICTION FOR LANDLORDS

Stage 3: LONG TERM TENANCY = THE BEST TIME TO MAINTAIN VALUE

You’ve created a nice place to live and demonstrated your responsiveness over the first three or four months. Now you get to sit back and relax. You’ll continue to monitor and respond to emergencies that inevitably arise, but maintenance decreases dramatically. At Nexus, we’ve been managing rental properties for over a decade, and about 90% of the time this pattern holds true. If landlords execute successfully in stage 1 and stage 2 then they are almost always guaranteed hassle-free long term tenancy…and that’s the ultimate goal.

LEARN MORE: THE TRUE VALUE (AND COSTS) OF REAL ESTATE INVESTMENT

CONCLUSIONS AND NEXT STEPS

If you own a rental property then you are a real estate investor…and the key to successful investment is spending money up front. Just as you’d need a sizable down payment to buy a property through a lender, you also need to commit to adding value through maintenance upgrades so you can attract the highest quality tenants. Remember, you’re competing with every rental unit within 30 minutes so you need to do something to help your unit standout.

One other way to stand out is to hire and partner with a professional property management company. Tenants put a premium on renting with professionals rather than D.I.Y. landlords because of all the convenience and consistency that comes with it.

Interested in learning more or discussing Nexus’ management services? Contact our teams at any of our Nexus offices across Arizona, Connecticut, Massachusetts, and Rhode Island.

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Mick Lefort is the General Manager of Nexus' New Haven County Franchise Office and the Vice President of Operations for Nexus Property Management®, a National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.

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