July 15th 2025
In today’s newsletter I’m going to cover an area where I am personally deficient. That comes under the heading of repair and renovation, and specifically asks, what degree of quality should be used to rectify problems as they occur.
Thirty-five years ago, when I first rolled out my First Time Investor’s seminar, I remember having in the crowd a young couple who were keen on getting into real estate investment and decided to start with a semi-detached. We found one, a backsplit that was owner occupied and was stunning. The owners had fully renovated the home in the highest quality throughout. I was concerned because the house was head and shoulders above the typical property on the market for rent.
Well, they bought it, and put it on the market for rent. It certainly wasn’t hard to find a tenant. Everyone who saw it, wanted it. They selected one of the applicants, but unfortunately didn’t do their homework. Before long the property started to look run down, inside and out. By the time the tenants vacated, the home was in a shambles.
Well, the owners rolled up their sleeves and fully repaired and renovated. Bringing the property to its original glory. They put another ad in the paper and once again rented it out with no problem. But once again they failed to adequately screen the tenants and once again made a bad decision. Before long the once pristine property began to look run down and again had fallen into disrepair.
By this time the investor couple were pretty discouraged. Once again, they went to work bringing it back to the lovely condition it was in when they bought it. And they put it up for sale. I couldn’t talk them out of it. They didn’t care if they lost money. They just wanted out. Had they stayed with it, that property would be worth almost ten times what they paid for it. If they hadn’t made two critical mistakes. First, they overimproved the property and turned it into a showpiece that not everyone would appreciate or care for. And then they failed to adequately screen applicants. How do I know it was ultimately their lapse in judgement? Well, once, anyone can slip up. But twice in a row, they obviously weren’t doing their homework when it came to tenant selections. But it also brings up a very good question. When renovating and updating, what level of quality do you aspire to?
I mentioned at the outset that I am deficient in this regard. I couldn’t do a ‘fix and flip’ for example. I love renovating. And I love upgrading a house or apartment. I go to inspect an ‘after’ version of a fix and flip and 9 times out of 10 I see a product I wouldn’t want to encourage a client to buy. Why? It’s poorly finished. Corners have been cut. Laminate was put down over linoleum or ceramic. The subfloor hasn’t been prepped. Flooring was laid up to baseboards rather than the baseboards being removed prior to the flooring being laid. Then being re-installed.
I recently fully renovated a lovely backsplit that had been misused by the tenants. The hardwood floors were ruined in every room. So, I decided to remove all hardwood – rather that add a layer of something over them. And to install porcelain tile flooring. I figured that would be long-term durable. But first I stripped all floors down to subfloor. Then I covered all floors with 3/4" plywood. I didn’t want any springiness where tile could break or grout come loose. You can’t do that kind of detail if you intend to sell. But remember, I never sell. If I’m going to keep these properties forever, I can justify stepping up the quality. But I admit I’m extreme.
Three different investor friends of mine just explained to me their approach to renovating. All agreed. Chances are you’ll need to re-do a rental unit within 15 years. So do quality, but with the realization that chances are these repairs aren’t going to get the kind of care your personal home receives. Quality with durability, but don’t go crazy. It’s wonderful to create and provide excellent accommodations, but keep in mind this is a business you are in, after all.