"No, nope, no way, not a chance, never". That just about sums up the thoughts most rental property owners have when it comes to the issue of having a tenant install items in one of their units. Most rental owners oppose tenants installing anything in their units, which is understandable since properties aren't like Lego sets that can be easily reconfigured. Concerns about quality, workmanship, liability, cost, and tenant skills influence their decisions on these requests.
But does it always make sense from an investment perspective to say "no" without considering the pros and cons of letting a tenant upgrade items in their unit? You probably see where this is headed. Let's explore the topic of permitting tenants to make upgrades in rental properties and how it could be advantageous for both tenants and owners.
"...think about whether it's something you would have done regardless of the request."
Tenant Upgrade Request: Approve or Deny?
THE REQUEST: Your tenant wants to install a ceiling fan in his rental unit. He plans to purchase the fan himself, and his brother, an electrician, has offered to handle the wiring and installation at no cost. Currently, there is no ceiling lighting, so the electrician will need to run wiring from the wall switch box to the ceiling.
What now?... Well, it's crucial to highlight that as the owner, you should be pleased that the tenant is requesting an upgrade. It's beneficial to have a tenant who wants to enhance the property.
1) It indicates that a tenant intends to settle in and stay for an extended period, and...
2) It demonstrates that a tenant is enhancing your property.
Another added benefit is that your rental property will now feature an upgrade (in this case, a ceiling fan), which you can highlight in your next listing, making your unit more appealing to future tenants. However, don't expect a small upgrade to significantly impact rental prices.
Who Pays for Tenant Upgrades?
As an owner, before spending on ANYTHING, think about whether it's something you would have done regardless of the request. For example, if a tenant asks to re-stain a deck, well the deck will need re-staining eventually. This might justify offering a financial incentive; the tenant would be pleased to do it and receive a small reward, while the owner benefits from getting it done at a lower cost than hiring a professional—it's a win-win situation.
So the paying issue is a personal one that you will need to consider as well as the materials that are going to be used. Who's to say you can't have varying degrees of what you will or won't pay for? For example: Paying 50% of the cost of materials may not be a bad idea or a bad deal and allows you to maintain quality control while also relieving you of the work of having to go out and look for the materials yourself. Plus, certain upgrades may even be tax-deductible—something worth checking in the IRS rental property deduction tips guide.
Should You Allow Tenant Installations?
Not all upgrades are created equal. If a tenant wants to install a ceiling fan and is willing to cover the cost, should you approve? If it makes the unit more attractive to future renters, it may be a smart investment. As seen in this RentCafe popular amenities article, even small upgrades can make a rental more competitive. Achieving a healthy balance results in a couple of outcomes:
You make the tenant feel like they have a say in the selection process (which again makes it feel like a home, which increases your occupancy) and...
You have a say in ensuring a quality product is being installed properly and one that will appeal to the majority of future tenants.
Related: How to Use Incentives Effectively
What About Installation?
In our ceiling fan situation, it's acceptable for the tenant to hire a known contractor, but you must ensure the contractor is licensed and insured, and collect proof of these qualifications before granting approval. Ensure all of this is documented in a tenant-signed addendum, which should include:
Equipment model to be installed.
Installation timeframe and project completion deadline.
Chosen contractor details, including certification and insurance.
Tenant confirmation to cover contractor and equipment costs.
Installed equipment becomes your property and remains post-tenancy.
Tenant bears correction costs for improper initial installation.
It's crucial for the tenant to understand that hiring a licensed contractor ensures the work is done safely and up to code, preventing costly repairs down the line and you should verify proof of such certifications and insurance. Under no circumstances should you approve contractors who are not properly licensed and insured.
Related: Top 5 Most Overlooked Lease Clauses
When Tenant Upgrades Make Sense
Some might argue, "If the tenant desires it, they should have simply searched for a place that offers it!" However, this isn't always the most mindful and effective investment strategy. Allowing the tenant to make upgrades can be advantageous and enhance your rental's appeal at a lower cost than if you were to make those improvements yourself. Furthermore, remember that other factors are involved, including reducing vacancy in two significant ways:
Your tenant is likely to remain for a longer period.
You won't need to spend half a day upgrading those items between turnovers; you can provide a better product more quickly.
Happy tenants stay longer, leading to fewer turnovers. Some of the best property owners implement tenant retention strategies to keep good renters in place.
Final Thoughts
If done correctly, you can certainly achieve a win/win situation. Don't be surprised if your tenants request further upgrades after you approve an initial upgrade request. You should follow the same process, initially assessing whether it benefits you, and so on.
If successful, you might discover that you can upgrade your units without experiencing any vacancy, enabling you to market them at a higher rent bracket (with several enhancements) the next time you list. This should result in a tenant who is pleased to have the opportunity to make the unit their home and an owner who is satisfied with an upgraded property at a reduced cost.
Related: The Best Rental Paints Colors
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About the Author Ricardo Reis - Learn About Ricardo
Entrepreneur, Inventor, Investor, Military Veteran. Ricardo is a member of G3 Management & Investments a division of Great Lakes Real Estate and a real estate professional. He is a real estate professional and a successful real estate investor for over 15 years.
NOT INVESTMENT, FINANCIAL, LEGAL, TAX, OR OTHER ADVICE: This blog is for informational purposes only and not a substitute for professional advice. We do not offer advice, solicitation, recommendations, or endorsements. You are solely responsible for evaluating the information's merits and risks. Always consult a qualified professional before acting.