How Much Should You Spend on a Rental Property Rehab?

How Much Should You Spend on a Rental Property Rehab?

How much money should
you spend on the repairs for your rental property? That’s today’s video. Let’s dive in. Hey everybody I’m
Clayton Morris. I’m the founder
of Morris Invest. And I’ve rehabbed hundreds
of homes in my life. And today, we’re going to talk
about rehabbing, and how much you should spend on the
repairs and the rehab of your rental property. If you’re new to
the channel, hey, thanks so much for stopping by. Do me a favor, if you would. Subscribe! Click the little subscribe
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to try to help you take action, create passive income in
real estate investing. That’s what this
channel is all about. So thanks so much
for subscribing. Today, we’re going to talk
about the rehab process. Now many of you guys are DIYers. You guys like to do it
yourself, and go out there, find properties, rehab
them, hire contractors, hanging drywall,
getting new roofs, buying furnaces, water heaters,
plumbing, all of those things. And then, finding tenants
for your properties. Right? Well this is for you. If you’re a DIYer and you want
to know how much you should spend on a rental
property, that’s what we’re going to
talk about today. By the way, I’ve got
a whole playlist here for DIYers who want to get
things done themselves. Today, I want to talk about
the money that we spend. Now on all the rental
properties that I like to buy, I like to be in right
around the $40,000, $50,000 range,
sometimes $60,000, is what I buy personally. All in, total cost of my rental
properties, is around $60,000. There are some
things to consider when you get your scopes of
work back from your contractors. And the scopes of work say,
it’s going to be about $30,000, $40,000. To me, that would be a red flag. I don’t want to be spending
more than– you ready for it, here we go. I don’t want to spend more
than about $20,000 to $25,000 for the repair of
a rental property. A couple of big reasons and
a couple of key takeaways on this. Number one, it’s
just too expensive. There are too many
fish in the sea for me to be spending that
much money on a rehab. Unless, for some reason, it’s
in some great little “niche-y” little street, that’s in a
little historic district, and I know that if I spent
a little bit more on this, that the equity is
going to be higher. Remember, I’m not really
investing for equity, and I’m not really
investing for appreciation. I want cash flow. So if I can add a
little bit more value, by adding a few extra
bells and whistles to a property that’s going
to then increase my equity long term, because like I
said, it’s in a historic area, or something like that, then
I might ahead and do it. But for the most
part, I’m not going to want to spend more than
that on the repair of one of my rental properties. So my cut off,
most of my repairs are going to be in that $20,000,
$25,000 range for repairs. However, that’s depending
on the purchase price. So let me give you some
round numbers to make it easier in your brain. Let’s say we buy, we acquire,
the house for $20,000. OK. And then we’re going to
repair it for $20,000. That’s OK. That’s a total of about $40,000. That’s kind of where most
of my properties hit. Maybe we acquire it for– but I want those numbers to
be kind of consistent, though. So maybe I acquire it,
though, for $12,000. And I’m going to– and it’s
going to cost me about $28,000 in repairs. That’s OK too. You see what I’m saying? That as long as I’m
not going above where I’m comfortable buying
my property prices. So I’m not going to
buy it for $40,000 and then spend another
$40,000 on the rehab. It just takes too
much cash to do what I could do for far less. Understand? Another big reason
I would stay away from more costly
renovations is the time. Remember, we’re in
this for the cash flow. We’re not in this to
flip the house in order to make money on a flip. We don’t talk about
flipping here on the show. I don’t care about flipping. To me that’s creating
another job for yourself. That’s not investing. Flipping houses
is not investing. That’s a paycheck. You buy a house, you add $50,000
to the house, you flip it, you hope you make $100,000. Takes six, seven months to
do it, eight months, or even a year to do that kind of work. That’s not something
I’m interested in doing. So the longer you have to
put work into this property– if you stretch into five
months on a rental property, that’s five months that
you’re not cash flowing. So usually, we can
hit that eight to 12 week mark for a
renovation, especially if it’s a heavy renovation. That’s a good number. And you know, you
have to consider a bunch of different things in
there too, like severe weather, maybe there’s snow
on the roof and we can’t switch the roof out. So $20,000. $20,000, $25,000. Let that be a
guide for you, even if you like purchasing more
expensive properties than I do. Like I said, I like to buy
the $40,000, $40,000, $50,000, home, $60,000 homes. Right in that sweet spot. But maybe you like to buy yours
that are $110,000, $120,000. That’s too much for me, but it
might not be too much for you. And therefore, if
you’re going to spend two to three months
doing a rehab on that property, and you’re going
to spend $30,000. Now you’re at a
$150,000 of cost. And it’s going to take
you that long to do it. To me, that’s just too costly. There are too many
great deals out there that you could find
that are almost, don’t need a lot of work. You could add $5000, $10,000
worth of rehab to, and kind of be up and running in
a less amount of time. It really depends
on your stomach for these types of projects. But I would warn you
against going too long, and spending too much
time on your rehabs for a rental property, not a
flip, for a rental property. I’m Clayton Morris. I hope you found
this video helpful. Again, I’ve rehabbed hundreds
of properties in that same price range, so I kind of know
what I’m talking about. And when you start adding all
these layers of complexity, things tend to go wrong. So stick with what you know. Stick with it being
cheap, and fast, and you’ll find
that cash flow will come much more quickly to you. Please, if you’re
not a subscriber, click the Subscribe
button over here and become part
of this community. I’d love to hear your
comments in the thread below. You can type up
your comments there. As well as, check out some
of the other great playlists we have here on the channel. We’ve got all kinds of
playlists and videos to help you go out there,
take action, and become a real estate investor. We’ll see you next
time everyone. Bye!

43 thoughts on “How Much Should You Spend on a Rental Property Rehab?

  1. Hi thank you for your videos. What do you think about renting out mobile homes for cash flow?

  2. LOL Where are you finding homes that cheap? Detroit? In my area you will only find houses that cheap in the highest crime areas. Generally I have to look for properties between 100-160k.

  3. What scope of work are you doing for $20k to $25k?

  4. Im in the process of buying a triplex. Any suggestions on what i should do to update the apartments? Just wondering what i can do to help keep the properties rented out.

  5. Hi I'm looking to invest in rental properties later this year and my sweet spot was $40,000-$60,000 now should my total add to that or should that be before renovation?

  6. Mr. Morris, I love your show and if I ever go the turnkey route I will definitely contact you. I am a newbie investor and was wondering the following question. I would like to know how do I go about financing a rehab? If I purchase with a mortgage, do I buy low enough to pay for the rehab cost from mortgage/loan?, do I find a private lender?… Thanks for your help.

  7. Hi, great videos and channel. What is your opinion on purchasing foreclosures?

  8. I am in north NJ, do you recommend an area to,invest in? Do you wholesale?

  9. Hi Clayton, When you say all in cost are you referring to the cost to buy and the rehab cost or just cost to buy ? Thank you.

  10. would you use contractors or inspectors before buying the house to see how much repairs are needed

  11. The $60k figure seems to be a solid number for single family homes, but what about town or roe homes that are converted into apartment units?

  12. Great Channel I like your approach and the information is high quality. I'm in the Dayton, Ohio Market. I set a price per sq ft for my rehabs. $12.00 per sq ft is what my costs average for a gut with new Kitchen, Bath, Windows, Water heater, Toilet, HVAC Laminate and tile floors. I only use hard surfaces no carpet.. Just finished a 3br 1.5 bath unit 1134 Sq ft. Total rehab costs were slightly over 13k all in on a Condo I bought for 12k. Rent is $850 NOI is $474 even after the dreaded HOA Fees. If your spending 20k rehabbing a 40K Home would be overbudget for me. Unless it included a new roof. Windows are always 200 an opening installed. I use Anderson Windows they have a line at Home Depot American Craft Series 50 best buy for the $ IMHO. Thanks for all the info.

  13. Are you including the contractors profit? Or their bill is a separarte one

  14. Do you have any before and after videos? Also, do you have videos on raising capital?

  15. Thank you

  16. Good stuff, thank you definitely recommend this.

  17. I like the video however I need clarification .so is 20k the total cost just for the cosmetic portion after you have done the major repairs such as water heater roof plumbing electrical furnace etc? Or is it just 20k for everything…also I live in southern California where the cost of properties are really expensive. Do you recommend going to the lower income neighborhoods to purchase properties that are complete guy jobs and vacant to keep the upfront cost low or buying in lower income neighborhoods period but need minor work. Sorry for the questions I'm new and starting out….

  18. Thanks again. I appreciate the details. It's what I need.

  19. What part of the developing world does he live in that a whole house costs $25,000 US dollars?

  20. Love your channel. If you plan on buying a property on a mortgage, do you include the renovation costs into the mortgage, or do them separately?

  21. 6 months for a flip? You are not building the house from scratch. I did a few flips and it takes 1 to 2 months max.

  22. Helpful as always, keep it up!

  23. Great video!

  24. Hi Morris!
    I would love to know what price to expect in Indiana to replace old knob and tube wires with new ones and old plumbing with Pex plumbing.
    Thank you!!

  25. real-estate = MONEY™

  26. Can you rehab inside only fire damage?

  27. What areas are you investing in Clayton? And what does a C neighborhood look like for you?

  28. How do you deal with older homes that might contain lead paint and or asbestos? These can both be very expensive to remove.

  29. Would the rehab be the same if I was refinancing to pay off hard money?

  30. you can buy houses for 12-20k in the neighborhood where rent is 700$? everything is possible in the usa :))

  31. Great stuff. I love this channel.

  32. Agree 100%, I like to keep my budget around 15k. Ikea kitchen's subway tile for bathrooms, and clearance flooring.

  33. What do you think of the 3D printing homes

  34. Thanks for your channel! I’ve been watching non-stop. Similar to your strategy, we’ve been purchasing $20k-$30k 100 year old homes in Louisville and typically replacing everything. Long term buy/hold. My question is, how do you keep your renovation costs to $20k-$25k? In my experiences fully replacing plumbing runs $5-6k, electrical $5-6k, insulation $2k, doors/windows $1-3k, framing/drywall/paint/trim $7-8k, flooring $1-3k, HVAC $3-7k, roof/gutters $5k, landscaping, etc.? That’s with me acting as the GC and performing some of the work. Do you have your own subs?

  35. Thank you for your videos, man. They're great!

  36. What about a milti-family property where I plan to live in? Properties in Chicago are quite pricey.

  37. If I buy a house for 40k including repairs ,how much rent I can expect after management percentage?

  38. Where do you usually get houses worth 20k. Off market or MLS ?

  39. G.O.A.T

  40. Nice call to action with the subscribe button ad

  41. This isn't exactly real estate related, but I really appreciate your pronunciation of words. Thank you

    It's a major reason why I watch your videos.

    I don't subscribe – but I watch

  42. Thank you for your guidance sir. Do you recommend using a real estate agent to find these deals or should I look for the deals myself ? I’m in the south Florida area. Thanks

  43. If equity is not important to you but cash flow is, what do you think of investing in mobile homes on private land, not in parks?

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