Turning on a Dime in Design Can Make or Break a Sale.
When it comes to design in an investment property, investors have been taught that “less is more.” While this can be true in some markets, a well-designed home with the right “finishing touches” will nearly always pull in better returns regardless of your investing strategy. Nicely-finished rentals will net higher rents; beautifully-designed rehabs can raise the comps across an entire neighborhood. Finding a balance between design and budget can be tricky and sometimes you may need to sacrifice a “want” for a “need” or be prepared to increase the budget slightly to reach the property’s market potential.
As a general contractor who specializes strictly in vacant properties for real estate investors there are certain trends that I tend to spot in my local market that can really pay off. While you should always evaluate the design before making decisions for your personal investment properties, here are a few things that we have noticed in the past 12 months that indicate a shift in buyer and renter preferences in our local Dallas-Fort Worth market:
No. 1: Gray is the “New Neutral”
Tans, browns, and taupes, while still a great color palette, have been pushed aside for the cooler hues of gray and white. So, if your rehab requires a complete cosmetic lift, we highly recommend these cooler colors. However, if you are keeping existing countertops, tiles, etc. that already lend themselves to the warmer browns, then stick with it.
No. 2: You Might Need to go for the Granite
Speaking of gray color palettes, countertop preferences are changing as well. Not only are we seeing that investors need to put in higher-quality countertops than they used to in rental properties, but the color scheme here is shifting as well. “White” granite with veins or lightly speckled colors of gray and black is in, taking over for the brown and black granite that has always been the kitchen staple. White quartz and even wood countertops are also very popular options these days and can give your property the extra “pop” that a potential renter or buyer is looking for.
Laminate is still a great option for your lower end rentals or flips with a wide variety of colors and patterns, but always check with your realtor to find out what your competition is doing and how far you need to go to maximize your after-repaired value (ARV).
No. 3: Rehab Prices are Rising
The last thing you want to hear from your contractor is that the cost of rehabbing is rising, but the reality is that investors are doing more work on less valuable properties in order to remain competitive. In the past, the “finish out,” or final set of renovations and upgrades, that we would have done on a $130,000 home in Dallas, for example, was substantially lower in cost than what we would have done on a $150,000 home. These days the $130,000 home is now demanding the upgraded finish out of the $150,000 home, however, while the $150,000 home is now getting the $200,000-home treatment.
The point is that all along the spectrum, the quality of materials and associated cost is rising, so be aware that your market may require you to spend more on a rehab than you expected in order to get the end results and return on investment (ROI) that you want.
Here is an example: Flooring has changed in the last year or so. Not only are investors no longer able to get away with using 99-cent/square foot tile in our local market anymore, but they are finding that their buyers and even renters want tiles that look like wood and are laid in a brick pattern. Those tiles tend to cost about 50 cents more per tile than the old option, and they are more expensive to lay because laying tile in a brick pattern is more time-consuming than laying squares in straight lines.
The best way to get the right design insight for your market is to do your research in advance, then talk to your contractor honestly about your budget and your goals for the property. Building a long-term relationship with your contractor will help you consistently reach your ARV and maximize your ROI