Rental property continues to be an excellent investment in 2020, especially as we’ve seen ups and downs in the stock market.
Thankfully, rental properties provide a steady ROI because people need a place to live, and there will never be a lack of demand for housing in the United States.
Even though rental properties are an excellent way to build wealth, the reality is that there are problems that every landlord should look for before purchasing a new property.
8 Problems To Look for When Shopping for Rental Properties
1. The Bigfoot Smell
When you walk into a house, and it smells like bigfoot died in the kitchen, is your first thought, “I gotta get outta here?” The truth is, most people respond with disgust, but seasoned investors see opportunity. Bad smells are one of the easiest problems to fix in a property but one of the things that drives away 99% of the competition. Bad smells are generally caused by one or more of a few things, none of which are difficult to solve:
- Rotten food in the cupboards or rubbed into the carpet
- Cat or dog urine soaked into the floor
- Smoke residue on the walls, ceiling, and floor
- Mildew on the windows, walls, or other surfaces
- Bigfoot dead in the kitchen
As long as you are not dealing with some kind of environmental issue or a major sewer leak under the house, you’ll likely find smells are fairly easy to eliminate with some cleaning. To get rid of the smell, go through the following list in order and stop when the smell is gone:
- Carpet: In my experience, getting rid of the carpet and the pad underneath will get rid of 90% of the problem immediately, so plan on hiring a couple people for a few hours to remove the smelly carpet. For less than $100, most of your problem will be solved. Open all the windows and let the property air out for a few hours.
- Mop: Mop the floor with a mixture of bleach and water. Let it dry, and open the windows to air the place out. (It can take a day or two for the smell of bleach to disappear and let you know if the smell is truly gone.)
- Clean: Make sure every crumb in the kitchen is picked up and all windows have been washed. Obviously, you will need to do this anyway, so find a professional cleaner who can come in and clean every square inch.
- Prime the Floors: If the smell persists, buy some cans of Kilz Oil-Based Primer and a long-handled paint roller from the local hardware store. Pour the primer out onto the floor (this is a lot of fun, actually!) and spread it over every square inch. I will warn you: oil-based primer is strong smelling, so be sure to use a respirator (they run about $30) so you don’t pass out. I’m not kidding—you will pass out otherwise. I’ve been there, done that. The chemicals are just too potent.
- Wash the Walls: This approach is most commonly used when dealing with stale smoke smell. Get a good sponge and a bucket of soapy water, and scrub the walls. Often, you will be able to physically watch the smoke residue wipe away from the walls, which is an oddly satisfying experience.
- Prime/Paint the Walls/Ceiling: Lastly, and for situations where the other approaches have not solved the problem, hire someone to spray the entire inside of the house with that Kilz Oil-Based Primer (about $200 in primer will do a whole house, plus two days of labor).
Following these steps, I’ve never had a problem smell I could not eliminate. Whether you do the task yourself or hire a local handyman to do it for you, the entire process is unlikely to cost more than $1,000 (not including the cost of the new carpet, which you are likely planning to replace anyway), and you’ll have a fresh, clean, and newly painted property, ready for a new tenant. The great news is that a bad smell can drive the cost of a home down considerably, maybe even tens of thousands of dollars. Now you understand why investors often say, “Mmmmm, it smells like money!”
One final caveat on the smell issue: make sure the smell is not coming from a busted sewer line under the property or in the basement or something tragic like that. That fix could be much more expensive. If you are unsure what is causing the bad smell in a property, bring along someone with more experience and/or be sure to get a professional inspection on the property.
2. The Hidden Third Bedroom
I mentioned earlier that I don’t like two-bedroom homes for a rental property. However, there is one case where I get very excited about buying a 2-bedroom home: when there is a hidden third bedroom. No, I’m not talking about some mysterious bedroom hidden behind a wall (though admittedly, that would be pretty cool!). I’m talking about taking a room that is not considered a bedroom and turning it into one.
For example, the other day, I checked out a house that had 2 bedrooms, 1 bathroom, a laundry room, and then a large “storage room” next to the laundry. This storage room was 10 feet by 12 feet—the perfect size for a bedroom. The walls were finished, the floor just needed carpet, and a door needed to be added. In other words, to turn this 2-bedroom home into a 3-bedroom home, I was looking at maybe $3,000 of labor and materials.
As a 2-bedroom, the property was worth about $90,000. However, as a 3-bedroom home, that same house was worth closer to $115,000. Why the agent didn’t list it as a 3-bedroom, I’ll never know. But I see this kind of thing all the time. In many cases, the difference in house value between a 2-bedroom and a 3-bedroom can be significantly higher than the cost of converting a “hidden bedroom” into a functional, legal bedroom. This helps build some immediate equity in the property, since you’re paying for a 2-bedroom but will own a 3-bedroom. In case you are wondering, the jump from 3 bedrooms to 4 bedrooms is likely not the same as from 2 to 3, so I usually stick to the latter.
Of course, not all 2-bedroom homes have this hidden bedroom; most don’t. But I’ve found that around 20% of 2-bedroom properties do have some potential for a third bedroom. Keep an eye out for this kind of property, and look for keywords like “bonus room,” “attic,” and “huge bedroom” (which can often be split in two).
3. Ugly Countertops and Cabinets
You’ve likely heard the phrase “kitchens and baths sell houses,” and it’s not an exaggeration! People spend a large amount of time in the kitchen, and nothing says “1979” like bright orange countertops or ugly cabinets. Most people simply avoid houses with these problems. Those people don’t realize how easy it can be to transform an ugly kitchen into a modern, beautiful one with just some new counters and a fresh coat of paint on the cabinets.
Yes, that’s right, many times you can paint old cabinets to make them look brand new! Rust-Oleum sells a really nice cabinet refinishing kit for less than $100 at Home Depot that will turn nasty cabinets into modern works of art.
Furthermore, replacing countertops is a fairly straightforward process. You can pick up prefabricated laminate countertops from Home Depot or Lowe’s for a few hundred bucks and have it installed in a couple of hours, or you can spring for nicer granite or quartz if the neighborhood style demands it. All in all, don’t be scared off by 1979! It’s entirely possible to turn a dated, ugly kitchen into a gorgeous one for less than $1,000, so look for easy wins like that to snag a great deal!
4. The Bad Roof
This one might come as a bit of a shock to people, because a leaking roof seems like it would be a pretty major problem. However, I like finding properties that are in desperate need of a new roof, because it scares off a lot of the competition, and getting a new roof is not a difficult process. Yes, it can be fairly expensive, but I can usually get the current roof removed and a new one put on for less than $6,000, and it’s completed in just one or two days.
Now I don’t need to worry about the roof leaking on my rental property for many, many years, and I can factor that into my budget. Keep in mind that roofing costs can vary wildly depending on the contractor you consult. In my area, the two largest contractors will typically charge between $15,000 and $20,000 to replace a roof, and because they are the largest roofing contractors in my area, most people call both and get bids from both, only to find that the bids are within a few hundred dollars
of each other.
Little do they know that the companies are actually owned by the same person, so of course, the bids come in the same! If they took the time to call a few more contractors, they’d discover that the cost of a roof is usually less than $6,000 from nearly everyone else in town—same materials, same quality, but drastically different prices. So keep that in mind when shopping for your next roof. Don’t get taken advantage of! Shop around, ask for referrals, and then check up on those referrals. Don’t let a bad roof overwhelm you, but instead, look at the opportunity!
5. M…M… Mold?!
Uh oh, did I just say the M word? Yep! And yes, mold is one of best problems I look for when buying a property. You see, mold is a scary thing to the average consumer, maybe even to you, but it shouldn’t be. You see, mold is a fungus that grows naturally everywhere. It’s in your house right now. It’s in your car. It’s probably in your beard and in your hair. It’s in the air you breathe, all the time, if you live in a wet climate. (Still scared?) Mold is everywhere that there is moisture.
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