Every investment property is unique. Finding potential in a piece of real estate that others miss is one of the thrills of rental investing. However, if you haven’t done your homework to ensure that you have all your bases covered when you buy a property, even the most delightful sunlit kitchen or spacious backyard might not save your investment.
Here are six basic requirements every real estate investment should have. None of them are complicated, but you would be surprised to learn how often a real estate investor will skip one or two of them in the hope that tenants will fall in love with a property’s attractive features and overlook the basics. They’ve paid the price in vacant units and rental income reductions.
Imagine that you are a prospective tenant looking for a residential property to live in for the next year or two. What would be on your list of must-haves?
“Good location” means safe and easily accessible transportation, food and entertainment, schools, recreation, and shopping. You can command higher rents for a great location.
If you compare single-family renters with apartment dwellers, you’ll find that single-family renter’s households are more likely to have children. They value neighborhood features important to children, such as parks and playgrounds, good schools, and safe neighborhoods.
Upgrades and Renovations
Improvements are anything that adds value to your property. Improvements contribute to appreciation, help you attract quality tenants, save you money, and keep your home safe. An HVAC, for example, regulates the temperature of your home and prevents humidity from collecting in your attic. Humidity in the attic can lead to interior damage, roof damage, and gutter damage.
Renovations to Consider
- Water-conserving toilets
Open Floor Plans
Open floor plans are having a moment. They make your rental property investments bigger, facilitate socializing, and make space for people doing remote work. All it may take is knocking down a wall!
Tax Write-Offs for Improvements
Remember to make use of depreciation and 100% bonus depreciation to save money. Also, make sure to document the time you spend researching all your improvements, contractors, etc. so that you can qualify for the 20% QBI deduction.
Replace the Carpet
Carpet is expensive and time-consuming to clean. It will slow down your rental property turnover. Consider replacing your carpet to save time and money.
There are many ways to finance your improvements. If you have enough equity in the property, you can take out a low-interest rate line of credit. You can also do a cash-out refinance, which is when you refinance your home for more than it’s worth so that you have money to use as you please. You don’t have to pay income tax on the cash you receive since it isn’t income.
Upgrade to an Online Rent Collection App
If you still use mail to receive your rent checks, you should absolutely upgrade to an online rent collection app.
- No more late or lost payments because of the mail.
- Tenants can schedule auto-bill pay.
- You can give tenants the option to pay their rent in installments.
- You can apply late fees.
- You can manage security deposits.
- Many apps can be used for communications and task delegation.
Consider self-showings to speed up rental property turnover and earn some extra points from your potential tenants. It only takes a little bit of tech to make your property capable of hosting self-showings, but it will make your tenants feel like you’ve got a modern operation. The convenience of self-showing will also make your tenants feel that you prioritize their comfort and time.
Most single-family rentals are detached in suburbs or urban residential neighborhoods with yards and trees. A majority, if not all, of your tenants, are going to need safe, free parking even if they can commute to work by public transportation.
Off-street parking is ideal. A driveway or a garage will help get the unit rented quickly and can command higher rents. However, on-street parking will suffice as long as a tenant has a place to park within close proximity to the property.
Many urban neighborhoods today offer free parking spaces by issuing residents special permits. If you have no off-street or public parking available, you might be able to negotiate with a neighbor to provide a parking space. If you can’t provide parking on any terms, your property will be harder to rent.
Adequate Storage Facilities
Storage facilities are a way to add rental property cash flow. You can have bike storage, parking, or general storage. You can be held liable for accidents that occur due to tripping over your own items that are not properly stored or if you allow for hazardous storage. In this way, extra storage can also reduce your liability.
If people are willing to drive to and pay for extra storage, they’ll be very appreciative of having storage in their own homes even if they have to pay a fee.
A Comfortable Outdoor Space
People love a backyard, but there are many reasons to provide outdoor space other than the perks it brings to tenants.
Designated Smoking Area
Smoking is a surprising landlord liability because it’s a nuisance and can cause difficulty for tenants with respiratory problems. Smoking is also a fire hazard and can slow down property turnover since it can stain walls and leave lingering odors. However, people appreciate being able to smoke, and a designated outdoor space can be a happy medium so long as the smoke doesn’t enter anyone else’s property. Although, if it’s not a multifamily property, then second-hand smoke isn’t something you have to worry about
Space for Dogs
Allowing pets can get people to choose your rental property over others and keep your tenants longer. Remember that pet policies don’t apply to emotional support animals or service animals because these are working animals. A backyard, then, can also sweeten the deal for tenants who need space for their working animals.
Grilling and Fire Pit Rules
If you permit grilling, fire pits, or chimneys, make sure to go over your ground rules of fire prevention. If you decide to institute a ban, make sure to make it clear in your lease agreement.
With the growing popularity and ubiquity of remote work, an outdoor space provides an attractive alternative to working inside the house. This is something tenants would very much appreciate.
A Cooperative Landlord
One of the most important features of a rental property is a cooperative, respectful, competent, and responsive landlord. That means respecting tenant privacy, quick turnaround times for maintenance requests, and a lease agreement that gives tenants ample freedom while providing explicit guidance as to what is or is not allowed. A tenant will appreciate, for example, if you have explicit rules for running a business out of their rental property even if they don’t want to run one because they’ll know you’re well-prepared and competent.
Not every rental property investor is cut out to be a landlord. If you find that property management is not for you, then hire a property management company. That way, your investment will truly be a source of passive income.
Certain aspects of tenant safety are the legal responsibility of the property manager. Many local laws demand that apartments have a deadbolt and a doorknob with a pin lock, so be sure to check what’s required of you. At a minimum, there are certain precautions you can take to prevent criminal activity.
- Exterior lighting
- Interior lighting for corridors
- Trim tall plants to increase visibility
- Install cameras
- Pay for a security system
- Deliver crime alerts
Protecting tenants from crime is a potential landlord liability, especially if you knew about crimes on your property in the past. Two of your strongest defenses against crime are rigorous tenant screening and a lease agreement that explicitly states that illicit activity leads to early lease termination. Income verification is an important part of your tenant screening because discrepancies in income could be evidence of illegal activity.
Just remember to follow fair chance housing ordinances, which prohibit criminal background checks as a justification for denying housing. These ordinances make sense considering how many people are wrongfully arrested and convicted. A criminal conviction also doesn’t mean that the potential applicant will commit crimes in the future.
Good Quality Appliances Included
Smart appliances are now the norm, so if you don’t have smart appliances in your rental property, it will be a significant deterrent for prospective tenants. Consider upgrading your appliances during a tenancy instead of during a vacancy. Allowing your renters to appreciate new appliances is a gesture that shows tenant appreciation and encourages lease renewals because tenants are able to use the new appliances.
Having to haul your laundry is a huge hassle, making an in-unit washer and dryer highly desirable. It’s worth the investment for the landlord because, for many tenants, an in-unit washer and dryer can actually make or break a deal.
You’re also better off having an in-unit washer and dryer than a laundry room with laundry tenants have to pay for. That space is better spent on storage or even a gym.
Tenants today come with individual requirements that you may or may not be able to meet. This list of “must-haves” should make it easier to prepare for the vast majority of requirements on the average tenant’s shopping list.