I spent the first few years of my investing career finding and buying properties that I could get into for little or nothing down. Many of these properties had been neglected by the owners and were in desperate need of fix-up and repair. I was able to increase the value of these older properties by doing several things:
Raise the Rents. Many of the properties that you will come across have rents that are either slightly below or way below current market rents. I give 60 days notice so that the tenants have time to check around and realize what a great deal they have even at the higher rent. At the same time the rent increases go out, make some obvious improvements to the property like painting the exterior, or sprucing up the landscaping. This helps the tenants to feel like they are getting some value for the extra dollars they are paying in rent. One thing we used to do was give the tenant a choice at the time of the rent increase of either having the carpets cleaned (which helps prolong the life of your carpets) or having one room painted.
Paint, Clean, and Improve When a Tenant Moves Out. When you raise rents, some of your tenants are going to move. Take advantage of this by going in and painting the entire place in bright white paint. Either clean or replace the carpets. Look for someone who deals in used carpeting. You'll save half the price of new and the tenant moving in will think that the carpets were installed new a year ago. Lay down new vinyl floors over the existing worn out flooring. New countertops are fairly cheap and easy to put in.
Transfer the Fix-up Duties to Your Tenants using either this method or the method described in number 4. When you rent out the property again, advertise the rent $50.00 higher than you expect to get. While showing the property, let the prospective tenant know that if they are willing to pay the first $50.00 of any repair, and the rent is paid on time, then they can receive a $50.00 discount off of the rent each and every month. This will eliminate all of the little repairs that take so much of your time, and will encourage your tenant to pay promptly!
I made a fortune using these three simple ideas, but I was getting tired from doing so much fix-up work. I found that it wasn't too long before I moved from a position of making $100.00-$1,000.00 an hour by using a pen to write creative offers to buy real estate, and what happened was that more and more I was forced to put down that pen and made to pick up a hammer.
Each time I picked up the hammer my income plummeted from what I could make as a real estate investor down to what I could make as a handyman. Even though I got to a point where I hired other people on and crews of people to do the work, I was still in the position of having to look after their work, making sure that the fix-up work had been done properly, and was billed correctly. At one time I realized I was so busy fixing and repairing that I hadn't bought a new property in over two years time!
After brainstorming with some of the best minds in the country, I found that I could completely eliminate fix-up and repair work forever. You see I discovered that Owners of homes like to do fix-up work because they feel like they are investing in the future value of their home. Tenants on the other hand tend to care less because they don't have any future interest in the property. I shifted my focus and started buying and controlling homes in nice areas that didn't need fix-up work.
4. This Is Even Better. Now when I rent out a property, I always offer an option to purchase along with the lease. I then collect money up front as an option payment that I get to keep if the tenant doesn't buy the property. (This is usually 3 to 5 times the size of a normal security deposit). The price that the tenant can buy the property at is usually the current value plus 75% of the amount that I expect the appreciation to amount to. So if you had a home worth $100,000.00 and the appreciation in your area has been averaging 10 percent, then your tenant's option price would be $107,500.00 for a one year option.
This allows you to have your tenant thinking like an owner rather than a tenant. Mr. And Mrs. Tenant, since you've got the opportunity to buy this house we would expect that you'll treat it just like you own it. Because of this we expect that you'll take care of any repairs that cost less than $200.00 per repair. (This covers 95 percent of all repairs) If something costs more than that, as long as you've provided us with several bids, we'll pay the amount above the first $200.00. Using these ideas you can begin to focus more on using your pen to make money rather than a hammer. You'll make more money and if you hit nails like I do your thumbs won't hurt so much.