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| This neighborhood was more appealing to me than the home, nice home though. |
When I started with the firm in 1978, our inventory of
investment properties was made up of single family homes typically 15 to 20
years old. They had been investment homes for many years. These homes were located in older
neighborhoods, built in the 1950s and 60's.
These neighborhoods did not have a Home Owner's Association, nobody was
monitoring the exterior condition of these homes. As a result I could drive through one of
these neighborhoods and point out the rental homes (both ours and someone else’s). They were typically characterized by
deteriorating paint (especially on the wood trim), dead landscaping, cars
parked on yards, and roofs missing shingles.
Luckily there was never more than two or three on a block.
The commonly held belief within the industry was that the
greatest return (either cash on cash or appreciation relative to the initial
investment) was to do only what was needed to attract the next tenant. Most of the homes in our management were in
neighborhoods that had many other investment homes, competition for tenants was
stiff.
I decided on a different approach. My goal was to improve the quality of the
homes that we were offering for rent.
Interior paint, clean carpeting, sparkling kitchens and bathrooms, and
green yards were the basics on my list of improvements. But I found that the majority of the homes we
managed frequently required more help. I
realized that I needed to make more improvements if I was to have any
meaningful difference in my program; exterior painting, a green yard with
freshly planted trees and bushes, and new roofs became fairly common. My biggest challenge was convincing my clients
(including my family) that my program would work. We lost a few investors with this approach because
it wasn't cheap. Before long I was knee deep in what felt more like construction and less like real estate. My wife liked to tease me, she called me the
"King of Counter Tops" because I was spending a lot of money on
Formica. She also gave me grief because
every home that I had painted was yellow with white trim and large house
numbers. Luckily I didn't have any two
homes next door to each other.
I found quickly that when I elevated a vacant home to a
higher level, the number of applicants and strength of their application improved
greatly. We were now attracting a new
kind tenant, those who would care for their new homes, also indicating that
they were hoping for a longer lease. In
reality, the tenant moving into these lovely homes more closely paralleled the
attitude of their new neighbors, the owner occupants.
I also had an ulterior motive with my new program. Run down rental homes were impacting their
neighborhoods. Because these home were
in a sad state of repair, it seemed that the surrounding neighbors immediately
on either side or across the street did not appear to be as well cared for as
the other homes nearby. It was obvious that
the motivation for a neighboring owner occupant to maintain their home had been diminished.
I noticed that within months of a full clean up and rehab of
these derelict rental homes, the surrounding homes also looked better. More than once I was approached by a neighbor
thanking me for the work that we were doing.
No longer could our rental homes be identified as you drove by - although
my wife started pointing out every yellow home, assuming it was in our portfolio of managed properties. These homes were now in the same condition as
the rest of the neighborhood. This eventually
was a win/win for everyone. The tenant
moved into a much nicer home, the investment owner had a tenant who would care
for the home and probably stay in the home longer, and perhaps the most important
result of all, it appeared that the homes in the neighborhood increased in
value.
What I learned from my initial experiment was:
- Better homes attract solid tenants who are more stable.
- Investment home owners have a moral responsibility to maintain their home on the same level as the balance of the homes in the neighborhood.
I now enjoy HGTV's show "Curb Appeal" almost as much as I enjoy playing Monopoly. FYI - if you haven't viewed an episode of Curb Appeal, you should, this
show demonstrates the value to a neighborhood when an ugly looking home has been restored to its original glory.
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