As a real estate investor, one of the important decisions you need to make is whether or not you should allow improvements made to rental property by tenant. It’s not uncommon for tenants to ask if they can spruce up the property to make it look like it’s their home. So, don’t be surprised if a tenant comes up to you and asks if they can repaint the walls, remodel the bedroom, and the like.
If you do allow them to make rental home improvements investment, keep in mind that you still have to consider who will pay for these improvements. Even if it was your tenant that suggested the upgrades, in certain cases, you, as the investor, will have to cover the cost. You’ll also have to be crystal clear about the improvements they can make, as they can either make or break your real estate investment’s value.
Fortunately, the expert luxury home management agents at Luxury Property Care are here to address your concerns. In this article, we’ll take a look at what to expect if you allow improvements made to rental property by tenant.
Why would tenants want to improve the rental property?
There are several reasons why tenants may want to improve the rental unit. For one, the property’s interior may not meet their standards. This is true for properties with out-of-date features, such as tiles that look like they’re from the 80s, or carpets that haven’t been replaced in over ten years! Your tenants might’ve agreed to rent out your unit due to the attractive rate, but it still isn’t what they’ve been looking for.
It’s also not uncommon for tenants to ask if they can make improvements to make it more functional. For instance, if the color of the bedroom walls is making it impossible to sleep, it would be reasonable for the tenant to ask to change it.
Carefully consider each situation, as some improvements can dramatically decrease the value of your investment property. It would be wise to hire a single-family property management service provider to help determine if you should allow improvements.
Can tenants make improvements at any time?
If your tenant asks to make improvements, they should ask your permission. This clause is typically stipulated in the rental contract. If your tenant improves the property in any way without your go signal, this can be considered as a violation of the lease agreement.
In the event of a violation, you can:
- Allow the improvements without reimbursing them for the cost of the upgrades.
- Ask the tenant to restore the property, but they have to cover the costs by themselves.
- Restore the property yourself by deducting the costs from the tenant’s security deposit.
- Evict the tenant.
The moment you find out that your tenants improved the property without your permission, either from your property management company or a property inspection, inform your tenants of the specific violation. Tell them that they should always ask your permission and let them know of any repercussions. Keep a copy of the notice to protect yourself in case your tenant decides to sue you in the future.
If your tenants do ask permission, you need to take into account the value that the improvements made to rental property by tenant add to your investment. Meet with your tenants to discuss the details of their proposed property improvements. Ask yourself if the changes are worth it, or if they’re luxuries they can live without. If you aren’t convinced that they should proceed with the improvements, provide an alternative as a compromise.
Who should pay for the improvements made to rental property by tenant?
If you never approved the improvement, but your tenant “improved” it anyway, they will have to pay for the improvements made to the rental property if it devalues the property. However, if the improvement adds value to your investment, you can either cover half of the cost your tenant incurred, or pay for all of it if the value it adds is that impressive. Keep in mind that you should only pay for improvements that you approved.
What rental property improvements by tenants should you approve?
As a rule of thumb, remember that property improvements should be approved not only for the current tenant but also for future tenants. In other words, you shouldn’t give the go signal on an improvement that only appeals to the tenant that suggested it. If your tenant suggests an interior design trend, be careful because trends change fast. If you allow an improvement that won’t appeal to a wide pool of tenants, you’ll have to restore the property with your own money upon tenant turnover.
It’s important to note that rental property improvements and rental property repairs are not the same. You can typically trust tenants to conduct one-time repairs, such as repairing a cabinet door or replacing a lightbulb, but remember that these are generally your responsibilities. As the property owner, it’s your duty to maintain the home’s habitability, but if your tenants are able to do it themselves, you can consider this alternative, too.
Improvements to rental property by tenants, on the other hand, are more complicated as they have the potential to increase the property’s value. If your tenant asks to make improvements, you’ll need to think it over carefully and oversee the process to ensure that it meets your criteria. Property improvements are more permanent, so you’ll have to make sure they’re done properly.
Can you make improvements yourself?
Of course! As the investor, you’re free to do whatever you want with your real estate investment. If a tenant recommends an improvement that will boost the property’s value, you can consider covering the entire cost. Not only will this make your current tenants happy, but it will also make your property more to appealing potential tenants. While you can allow your tenants to make improvements, it would be better to tackle these yourself so you can take full control over the renovation.
Over time, your property will need improvements, so it would be beneficial to listen to your tenant’s ideas. After all, they are the ones that are residing in your rental property, so they will know what works and what doesn’t. If you’re sure that the improvements will increase the value of your property in the long term, it wouldn’t hurt to go ahead with the renovation. However, if you’re uncertain, it would be wise to seek the advice of a property management company.
At Luxury Property Care, aside from offering general property management services, we also provide our clients with professional advice on property improvements. With us by your side, you can be absolutely certain that the improvements you or your tenants make add value to your investment.