In search of the highest quality tenant
When considering a kitchen remodeling project for your investment property, always keep in mind the overall benefit of the undertaking: attracting a higher-quality tenant. A tenant who will not only be a regular, on-time payment maker of their rent, but also one that can afford and appreciate the newer, higher market rent you’ll be charging for the right to live in an updated unit. Obviously, these types of tenants are golden to any landlord. And tenants like these help to lower your vacancy rate, while minimizing your time and overall risk per unit. In addition, you should take into consideration that the renovation must be kept as simple and economical as possible – after all, it’s not your own home kitchen you’re remodeling here.
Once you’ve decided it makes economic sense to renovate a kitchen in an investment property, look for the easiest, most basic ways to do so. One of the most cost-effective and intelligent ways to rehab a kitchen is to simply “swap out” existing components of the existing kitchen that need replacement. Again, remember this is not your home you’re remodeling. You’re not interested in oversupplying tenants with amenities that don’t provide for proper payback in increased rent. Also keep in mind that a kitchen rehab of a unit in Trump Towers is a far cry from a rehab of an average 4-unit multifamily house in Everytown, USA. In addition, keep the project look on the blander side – nothing flashy, and make sure it appeals to most everyone, and that there’s nothing uniquely objectionable about the renovation. Basically, try to keep your own personal tastes at bay.
The simplest kitchen swap outs involve only replacement of existing appliances – oven, refrigerator, dishwasher and microwave traditionally. However, if the cabinets haven’t been replaced in over 25 to 30 years, it would be wise to replace them as well. As long as you are strictly replacing cabinets in the exact positions they were in before, there will be no need to update kitchen electrical wiring to today’s electrical code requirements. Likewise, as long as you are replacing the existing sink in the exact position as the old one, no new plumbing requirements will be triggered.
The building permit triggers
However, once you try to add a dishwasher line, or change the position of the sink, or add an island, or reconfigure the cabinets in any way other than what already exists – you’re going to need a building permit from your local municipality. And your electrical outlets may need to be either updated and/or more outlets added to bring the kitchen up to today’s codes. In addition, any plumbing change will also require a separate licensed plumber to come in and make those changes/additions as well. Obviously, if you’re adding anything (like said dishwasher, or a line for a refrigerator with an icemaker, or switching from an electric to gas-fired oven), you’ll be required to get a permit for the plumber’s work as well, as part of the overall building permit on the renovation.
Automatic assessment increases
And it’s that building permit that will certainly trigger an automatic increase in your property assessment, yielding an increase in taxes for you. So make sure any changes/additions you make to your kitchen are absolutely necessary, and try to go with the swap out approach first. If you feel you must change the kitchen more radically, then you must be sure you know you’ll be able to offset the increases of rehab expense, building permit time and cost, and concomitant tax increase on the property with much higher rents over the long run.
If you do decide to do a larger-scale remodeling, try to keep your costs in check by utilizing the free services of the kitchen planning departments associated with the big box stores like Home Depot or Lowes. In addition, the discounted cabinetry from these stores will also help in keeping the overall project cost down.
Choosing the contractor
Finally, another useful bit of investment property information when doing a kitchen remodeling job, is to make sure you choose your contractor carefully – there can be a glut of them available due to the current housing market malaise.
Make sure they are licensed. Also, make sure you set up a written contractual payment schedule with them. The schedule should include a small down payment (usually only 25% to 33% down before work starts, to allow them to purchase materials for the project).
The schedule should also reflect future payments tied directly to completed stages of work. In this way, you won’t allow the contractor to get too far ahead of you in receiving his payments. Whenever possible, see if he can offer you his contractor discount on materials he purchases from supply houses. You can also offer to purchase materials (like cabinetry, countertops and appliances) strictly by yourself, and have them waiting on site for the contractor when he starts the project.
photos courtesy of archzine.org, pm.tayki.com, kitchenremodelingdesign.net, rivertoncity.com, interiordesignperth.com, c9insurance.com