As a single family rental investor I’m often asked how I determine the scope of work on a particular property. The scope I create is defined by two important questions I ask myself:
Will the money spent on a specific item create sustainability that leads to long term predictable income based on less overall expenses.
Will the money spent help us to attract the best tenant who will take better care of the home and have a less likelihood of not being able to pay their rent or worse.
These two questions have become the foundation of my success when investing in rental properties. Many investors will purchase a property and put as little money as they can which is a legitimate strategy, It’s just not my way of doing things.
When I initially purchase a property I’m able to include many of the costs associated with my scope in the purchase price. If I didn’t invest the money on the front end I would not be able to accurately predict the future expenses making it less likely to have long term predictable income.
For me, it’s easy because construction is a passion of mine so purchasing properties and renovating them on the front end only makes sense.
In order for you to better understand the two main question I ask when determining the scope I can give you another way of looking at it. When I use the term sustainability it generally refers to the major mechanicals and high ticket items in a home. The major mechanicals include: Furnace, hot water tank, electrical panel, plumbing, windows, roof and siding.
If all the major mechanicals are in good working order then I am reducing the potential costs to replace and or repair them from my cashflow estimates.
When I determine if the money spent will attract the best tenants it typically refers to the cosmetics of the renovation. The cosmetic items include: Paint, flooring, kitchen and bathroom upgrades.
If all these items are included in your scope you will increase your chances of success.
Investing shouldn’t be hard. From my experience if you focus on sustainability and attracting the best tenants you are going to be more likely to succeed as a landlord. If you don’t then you’re simply taking on a risk that could have been avoided.