What’s a Good Rental?

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In the post on yield play vs value play, I mentioned that there is such a thing as a typical rental house. So, in this post I’m going to talk about it. A typical rental house is not what you may think – unkept and broken. We talk about typical in numbers.

The first thing to note is that rent per square feet goes down as the property get’s bigger. That is you can’t ask for more rent, just because it is a bigger house or a nicer house for that matter. There is such a thing as market rent. So no matter how much bigger your house is or how much nicer it is, you can’t draw much more rent. It’s not worth it to even try.

So here are the characteristics:

  1. Three or Four bedrooms
  2. Two to Two and a half bathrooms
  3. Two car garage
  4. 1600 to 2400 sq ft in size

Note that we are talking about the Dallas, Fort Worth, Denton area. You want to buy a house in a neighborhood where these numbers are typical. Do not buy the largest house in the neighborhood. Stay around the median in all numbers and get that house for 60 to 70% of its market value. I’ll write a separate post on how to compute market value. A house like the one I have described should rent for about $1,000 to $1,400 per month (based on the area it is in). The number one factor that’s going to determine your rent is the market rent. It does not matter how much nicer or bigger your house is. Its impact will only be marginal. I am repeating this as it is important.

Now, let’s talk about a typical rent ready condition. When the house is placed for rent (after rehab) it must have:

1. New Two Tone paint outside and inside: Two tone means, one neutral color on the walls and another color for the doors, baseboard and trim. Usually the trim color is semi-gloss white. On the outside, you have one color for the siding and another for the trim. You can also have the door painted a third color.

2. All new flooring/carpet: The carpet must be new or if it’s in good condition, professionally cleaned and shampooed. All wet areas; bathrooms, kitchens and entry ways must have ceramic tile. Living areas can have carpet or laminate hardwood floors. If you get a good deal on click install real hardwood floors, you can get those as well. I have found great deals for tile and wood flooring at Floor and Decor.

3. All new appliances: Appliances must either be new or in almost new condition. Kitchen appliances must be completely functional. Get all the appliances to match (at least in color if not brand). The best way is to get a package deal from Sears Commercial or similar. Get appliances professionally installed. Kitchen appliances must include oven, cook-top, dishwasher, microwave, vent hood and garbage disposer. Providing a refrigerator is optional. It’s usually cheaper to get a slide-in oven/cook-top combination and a microwave-venthood.

4. Satin nickel or oil rubbed bronze fixtures and fans. Keep it uniform. Get the set where possible. Unless it’s a new house, you want to replace all switches, plugs and plates. Get an electrician to give you a package deal. Make sure all GFCIs are working and are where needed.

5. If the faucets are old, replace them with satin nickel or oil rubbed bronze faucets. You can find good deals at stores like Seconds and Surplus. When you are replacing faucets, replace the cut-off valves. Get half turn quick cut-off valves. You never need any setting except on or off in most cases, so why get ones that you have to turn 10 times!

6. Get all new knobs and locks. Again, get satin nickel or oil rubbed bronze. Now, this is important: for the locks, get the smart key version. It does not make sense to pay a locksmith to change out all the locks when a tenant moves out. With the smart key, you can program a new key anytime, quickly. The higher cost is well worth it.

7. If the water heater is not new enough, get a new one installed. It’s cheaper to get things done as a package with plumbers and electricians than doing it piece-meal.

Note that we have not done extensive remodeling. We have not removed walls, added rooms, built patios or put in pools! Don’t get carried away with remodeling. You want your rental house to be clean and functional with the latest look. You don’t need marble living rooms and granite slab counters.

The total cost for a rehab that includes all of the above should be less than $10,000 for a $100,000 house. I would say, the max should be about 10% of purchase price. There’s a lot to talk about when it comes to rehab, so I’ll dedicate a post for that. The discussion here is to tell you what’s considered typical – at least in my book.

About Bernie

Bernie is a distinguished technologist (Motorola heritage). He along with his wife invest in residential real estate in north and central Texas. Bernie loves to teach, both technology and real estate investing and so authors posts on this blog. You can reach Bernie at mentor@buysellmls.com.
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3 Responses to What’s a Good Rental?

  1. Pingback: Comparative Market Analysis | BERCAT Real Estate

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