No, nope, no way, not a chance, never. That just about sums up the thoughts that most rental owners have when it comes to the issue of having a tenant install anything in one of their units. I mean, can you really blame them? After all a property is not some random Lego set that you can just take apart and put back together without giving it much thought. Quality of materials, quality of work, liability issues and the tenant's ability to be handy are just a few things which run through an owner's mind when deciding whether or not to approve a tenant request to upgrade or install anything on a property the owner is financially tied to and cares about.
But does saying "no" without weighing the downfalls and benefits that come from allowing a tenant to upgrade items in their unit, always make sense from an investment standpoint? Yeah... you know where we're going with this. Lets delve into the issue of allowing tenants to upgrade items and how it might benefit both tenants and owners.
The Upgrade Request Comes In
The Request: The tenant wants to install a ceiling fan in the unit he is renting and says he would buy the fan and his brother, who is an electrician, would do the wiring and install the fan for free. There is no ceiling lighting now so the electrician would have to do the wiring from the switch box on the wall to the ceiling.
What now?... Well, it's important to point out that if you're the owner you should be happy the tenant is asking to upgrade, it's a good thing to have a tenant want to improve the property:
1) it shows that a tenant plans on making it a home and being there for awhile and...
2) it shows that a tenant is improving your property
Another added benefit is that your rental will now have an upgrade (in this case, a ceiling fan) which you can post on your next listing and make your unit more 'rentable' for the next tenant - however, don't count on a single minor upgrade affecting rents much.
Who Pays for the Upgrades?
Before you, as an owner, pay for ANYTHING, you should consider whether it is something that you would have considered DOING anyway regardless of the request. For instance, if a tenant requests if they can re-stain a deck, well of course, the deck has to be re-stained sometime in the future and so that may warrant a monetary incentive; the Tenant would be happy for being able to do it and possibly get a small incentive and the owner would be happy since it needs to be done anyway and it can be done for a lesser cost than hiring a professional - win/win.
So the paying issue is a personal question 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 instance: paying for 50% of the materials costs may not be a bad idea or a bad deal and makes it clear that you have a say in the matter while also relieving you of the work of having to go out and look for the materials yourself.
Okay, I get it but, should I or should I not allow the tenant to install the ceiling fan?
If the upgrade is needed and translates into a more marketable property in the long run, you should at least consider it. Perhaps even asking the tenant to find and pick the fans they want and provide you with 2-3 choices of fan models of which you as the owner would have the final say on which one will be installed. This seems to be a good balance since you have to after-all keep and live with these upgrades for future tenants. A couple of things occur when you achieve a healthy balance:
1) 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...
2) You have a say in ensuring a quality product is being installed, which will appeal to the majority of future tenants.
What About Installation?
In our ceiling fan scenario there is no issue in having the tenant use a known contractor, but, you do NEED to ensure that the electrician is certified and insured and be sure to collect proof of these items prior to your approval. It is also important that the tenant understands that the contractor must provide you - the owner - with proof of their certifications and appropriate insurance. At no point should you give approval if the contractors being used are not appropriately certified or insured.
Of course you want to make sure all of this is in writing through an addendum signed by the tenant which should include:
The equipment model to be installed.
A time window for installation and a date the project should be completed by.
The contractor to be used.
The contractor's certification and insurance policy #'s.
Clarification that the contractor and equipment costs will be the tenant's responsibility.
Clarification that the installed equipment will become your property and remain with the property when the tenant moves out.
Notification that the tenant will be responsible for the costs of having your contractor do a correct install, if the equipment is not initially installed properly.
The Investor Mindset
Some may say, "If the tenant wants it, they should just pay for it!"... well, sometimes that might not be the best investment strategy. Sometimes it would be to your benefit and would increase your rental's marketability at a lesser cost by allowing the tenant to upgrade, as opposed to doing the same thing, on your own, with your own funds. Additionally, keep in mind that there are other factors at play and one of those is that you decrease vacancy in two major ways:
Your tenant will most likely stay longer.
You no longer have to take half a day between turnovers to upgrade those items; you can turnover a better product faster.
Related: How to Use Incentives Effectively
If you do it right, you can definitely get a win/win. Don't be surprised if your tenants' ask to upgrade additional items after you successfully approve an initial upgrade request of which you should follow the same process... initially determining if it is to your benefit, etc., etc.
If successful you may find that you are be able to update your units, while benefiting from zero vacancy which will allow you to market within a higher rent bracket (with multiple upgrades) the next time you list. The result should be: a tenant which is happy for being given the chance to make their unit a home and an owner which is happy with an upgraded property for a fraction of the cost.
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About Ricardo Reis
Ricardo is a member of G3 Management & Investments and a real estate professional. He has been a successful property manager and real estate investor for over 10 years.