Real Estate Secret #4 Know how to Attract and Keep Tenants using the Broken Window Rule
Know How to Attract and Retain Tenants Have you ever ridden in a friend’s brand new car and then got back in your car? What was your first thought? If you are like most people, it was, “My car sucks. I need a new car.”
A car that seemed fine just moments ago is suddenly unacceptable. Why is that? The reason is you became aware of something better. So what does this have to do with investing in real estate? When it comes to attracting and retaining tenants, you need to make them aware of “something better.” Now before discussing this, please take this caveat to heart—improve your properties, but don’t OVER-improve your properties.
In real estate class, I recall my instructor covering “over improving” in a neighborhood when doing comparable of home values based on location, functionalities, house age and such. There is a such thing as over improving and not getting the return. If all neighborhoods on the same street of similar square footage are valued around 200k-250k, even if you have upgraded all your counter tops, added an indoor water fountain, decked up the pool and such, with similar square footage and location, its just not likely to price the home a half a million. The same principle applies to rental upgrading.
While everyone loves granite countertops, installing them in what will be a Section 8 rental is probably not your best investment of time and money. So where do you draw the line and what will give you the most bang for your buck? First, keep in mind that more often than not, you will be showing the property when it is empty. This means that every chip in the paint or stain on the carpet will stand out like a sore thumb. Consider repainting your property every time old tenants move out.
This will provide a clean and fresh look to prospective renters. Now while there may not be a need to install new flooring with each tenant, objectively evaluate the remaining life expectance of the flooring and at the very least have the carpets cleaned before showing the property. Another way to think when deciding what to replace or upgrade, is to consider the Broken Window theory.
Social scientists James Q. Wilson and George L. Kelling, who first introduced the theory, put forth that a broken window left unattended increases the likelihood of additional windows being broken by vandals. If not corrected, eventually over time further vandalism escalates.
Successful real estate investors follow the Broken Window theory, but in the reverse. They understand that a few upgrades on a property help tenants see the property more as a “home” instead of a place they are just renting. They become more focused on taking care of the property than they would if the property had discount appliances and builder-grade carpet. This in turn helps keep maintenance and repair costs lower as well as increases how long tenants stay in the property.
While there is no definitive answer to how much or how little to upgrade, you will need to understand the rental market in your area and what is considered standard. By understanding your competition and listening to the feedback of prospective renters, you will get a good sense of what will help you attract and retain tenants.