New Trend: Corporate renters Renovate?

When it comes to real estate investment we always talk about “Pride of Ownership”. There are those property owners that regardless of the potential financial return upgrade their properties because they see the property as an extension of who they are and their owner personal reputation. Then of course, there are those owners we call “Slum Lords” who don’t care what the property looks like they just want to get the maximum rental return from the property today and they don’t care what the property will look like tomorrow.

This concept is one of the reasons I worry about the new trend of Residential REITs – these are publicly traded Real Estate Investment Trusts who are buying thousands of private residences and rent them returning a profit for their investors. I worry that they, or those evaluating their stock, will not value the greater good of the neighborhood or the longterm health of the property as they evaluate how to upkeep their rental portfolio.

One of the trends we have seen developed of the years of the Recession is the return of the corporate renters. I like to say at the height of the real estate craze the “American Dream” of home ownership turned into the “American Devine Right” without the property qualifications. Now some people don’t have the right credit to own a home, some people don’t want to own a home and some people are in real estate markets where they just can’t own a home.

Recently the NYTimes ran an articleWhy Renters Renovate“. I found the story to be very interesting and a great solution for the family. The family found a rental property that was the size and location they liked but not the condition. They took a five year lease on the property and the landlord agreed to give them a slight reduction in rent. The tenant then agreed to upgrade the property at a price tag over $45,000.  

Wow sounds like a win – win. MAYBE…

WARNING: As a landlord it is important to stay in-control of your rental property and its condition. Also there is an efficiency to keeping things simple. If you have a 10 unit apartment building and each property has the same light fixtures with the same light bulbs it is much easier to maintain than 10 different fixtures with 10 different kinds of bulbs. DIY renovations can, when they go wrong, damage other properties in the building and cost more to fix. Most importantly make sure you take a the time to have specific written expectations for the quality and details of any property upgrade because in the long run these types of deals can cost the landlord more.

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