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when your tenant takes occupancy. An inspection for bedbugs and other pests before your tenant moves in provides a baseline, showing that bedbugs weren’t present at that time. That doesn’t mean you shouldn’t aggressively respond to eradicate any future infestations, but effective pest control to minimize issues requires the full cooperation of the tenant, the landlord, and the pest-management professional. For more info about bedbugs, flip to Chapter 19.

      Considering renovations and upgrades

Almost every rental unit has the potential for renovation or upgrades, giving you the opportunity to create real value in your units. The trick is evaluating the cost of the renovation or upgrade versus the rent increase you can get out of a particular improvement before you start renovating. You need to be sure that you’ll get your money back from your investment. The following sections help you figure out how much to renovate, what features prospective renters like to see, and what you need to do to stay within the law.

      DETERMINING WHETHER TO RENOVATE: WHAT’S YOUR RETURN?

      When you’re considering making renovations and upgrades, you need to understand what they can and can’t do for you. Many times, renovations and property upgrades result in increased net income and higher property value. At other times, however, the benefits may not justify the investment.

      

To consider the payback of a proposed improvement, calculate the total installed cost of the upgrade, and divide that number by the monthly increase in rental income. If you install a dishwasher for $400 and consequently increase your monthly rent by $25, the payback is 16 months. Whether 16 months is an acceptable payback and worth the initial investment of $400 is something that you have to determine. Just remember that you’re not only increasing your monthly gross income, but also generating increased property value as a result of higher net income. The higher net income makes your property worth more to a buyer when you look to sell it.

      Every real estate investor has different expectations, but generally, any payback of less than 24 months is good, especially when you look at the increase in property value that accompanies increased net income. See Real Estate Investing For Dummies, 4th Edition (John Wiley & Sons, Inc.), which I co-wrote with Eric Tyson, for more discussion of ways to increase the value of your rental property.

      

Not everyone appreciates or values the same features in a rental unit as you. This property is a rental property, and as the saying goes, “Beauty is in the eye of the beholder.” The features and amenities that appeal to you may not be worth the extra investment from the perspective of your target tenant market. Although you prefer expensive travertine floor tiles in your own home, for example, you may find that more-durable flooring products can tolerate the heavier wear and tear of rental units much better. Although cleanliness has universal appeal, features such as ceiling fans and microwaves may appeal more to some prospective tenants than to others.

      EYEING WHAT PROSPECTIVE RENTERS WANT

Some tenants value certain improvements more than others do. So the main question is this: What features and improvements do most prospective renters want (which in turn can bring you more money in terms of higher rent)? You can’t come up with an exact answer to what amount of increased rent a particular upgrade will generate. A new granite countertop in the kitchen or new light fixtures in the dining room will have a different effect on each prospective tenant; some people are willing to pay more for those amenities, and others aren’t.

      

Are you feeling a bit confused about the features that prospective renters want? Never fear! The following tips can guide you:

       Keep in mind what features and strengths your prospective renters will find in competitive rental units. Look for outmoded or outdated features in your own unit. Perhaps most of your competitors offer dishwashers, but you don’t have one in your unit. You may want to install a dishwasher so that you remain competitive. But don’t forget that you’ll lose cabinet space, so you need to evaluate all aspects of the potential upgrade, not just the cost. Or maybe your unit has a very old dining-room light fixture that you can easily replace with a modern light fixture or a ceiling fan with a light kit. Another simple upgrade is replacing your old electrical switches and outlets for a more modern look. Installing new hardware or refinishing the face of the kitchen cabinets are other low-cost upgrades. Many older cabinets are of good quality, and only the doors and hardware need a facelift. Pay particular attention to those items that are quick, easy, and inexpensive to replace but can improve the overall look of your unit.

       When upgrading or replacing your current appliances, always compare energy-efficiency ratings, and standardize the brand and model wherever possible. One advantage of upgrading your appliances is energy efficiency. Though your tenant may be the one paying the rent, remember that green sells, and you can easily demonstrate that your unit will cost your tenant less each month in utilities with new energy-efficient appliances.The advice to standardize the brands and models of appliances in your rental units is particularly true for certain appliances; you can easily replace modular components to give the appliances a new look and extended life. Stoves, ranges, ovens, refrigerators, and washers and dryers fit into this category. When appliances such as microwaves, dishwashers, and garbage disposals fail, it’s more cost-effective to replace the units. So for this latter category of appliances, you want to take advantage of appliance vendors who have certain models on closeout or special pricing while staying with the same color scheme or finish. Bonus: Tenants generally don’t pay much attention to the brand of the garbage disposal, so you may as well take advantage of any specials. Buying a discontinued brand or model of a stove, however, may save you money up front but cost you much more in the long run, when you’re unable to find replacement parts.

If you have an older property, renovating may be more difficult because of some of the hazardous materials used in your unit’s original construction. If you suspect any hazardous materials based on the age of your property or the type of construction, be sure to have testing done before you do any work. Hazardous materials such as asbestos and lead-based paint aren’t cheap to remove. Often, you’ll be better off leaving the materials in place as long as they haven’t been disturbed. Consult an expert on removing hazardous materials before determining the extent of the renovation and the proper methods to ensure that all hazardous materials are maintained safely. Also, check with your local building-code enforcement or health department for requirements on the proper handling and disposal of hazardous materials.

      The Environmental Protection Agency (EPA) has implemented a lead-safe certified renovator program, and you should use only contractors who are on the approved EPA list. See www.epa.gov/lead to find a certified lead-safe firm near you. For more information on environmental hazards, see Chapter 10.

      OBTAINING THE APPROPRIATE PERMITS

      When you’re considering renovations or upgrades, make sure to get the appropriate building permits or licenses required in your area. You don’t need to be a code expert, but having a general understanding of both local housing codes and state housing laws is important. Evaluate your property to ensure that the planned work meets current building codes. Every state and many local municipalities have building codes that dictate the minimum standards to which all buildings must substantially comply. Often, they have housing, fire, and health and safety codes as well. Reviewing rental housing industry publications can alert you to significant changes in these codes. Also, using specialized trade contractors who stay current with all code changes that affect

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