However, there are certain upgrades you need to make so they will be more valuable to your rental customers. When they are more valued by your customers, they will stay longer and you will get a better cash flow for the property.

In this article I’m going to give you three tips on the types of improvements that I would recommend you make to these types of properties.

1) Increase the Energy Efficiency
The first improvement is to increase the energy efficiency property. One of the best way to do this is to make sure you don’t have too many windows. Many times these older homes have way too many windows because they were built for time when the only air conditioning was by opening the windows.

For instance, if it has more than one window in the bedroom I will usually close off unnecessary windows. Usually I have one window per bedroom, and sometimes as many as two. I’ll be sure that I do that in a way to so that wind can not get through.

Another good idea is to make sure that there’s plenty of installation in the attic. When you buy a house, make sure you look in the attic to see how much insulation you have up there. It should at least cover up the 2 x 4’s.

2) Improve the Layout
The second tip is to improve of the property. In older homes, there are often way too many walls and partitions. For example, in a duplex that I recently renovated, there was a wall partition separating a living area from kind of strange room that didn’t make too much sense. It was either a terrible bedroom that you had the walk through to get to the rest of the duplex, or it was a dining room which probably wouldn’t get used as a dining room anyway.

I decided to take out the wall partition. I made it into a much nicer, larger, more open living area. It makes the duplex much nicer and more appealing.

3) Upgrade Plumbing, Electrical, and Heat and Air
OK. The house is almost 80 years old. That means those pipes and wiring might be that old if hasn’t been replaced.

That’s expensive, though, isn’t it? Yes, it is expensive. But it’s probably inexpensive compared to the alternative.

It’s far better to go ahead and replace those systems with newer more up, to, date electrical, plumbing, or heating and air if it cuts down on your maintenance cost. Also, if you continually need to get maintenance done, your tenants are going to get very frustrated because things are not working properly. I recommend that you update those items in a cost effective way so that the house will be more functional.

Question: “I have purchased another cash flow property (a single-family house), and am about to get started on the renovation. It’s a large house, and I could squeeze out an extra bedroom to make it a 5-bedroom house. Would it make more sense to keep it a 4-bedroom house, or squeeze out that extra bedroom and have 5 bedrooms?”

Answer: “It depends on how the house is laid out. The guiding principle in this case is to give the market what it wants. In a large house like this, you’ll naturally be looking to rent this house to a large family.

If you took part of the house that would otherwise be used for a living area and converted it to a bedroom, you may not have enough living area for a family that size. If, on the other hand, you converted a garage to get that extra bedroom, you’d be making a mistake because that family is going to need some type of outside storage for their mower, etc.

You might get a promise of a somewhat higher rent from section 8, but in most cases I would advise against trying to squeeze out an extra bedroom.

It’s much different that trying to choose between a 2 bed and 3 bed. In most cases, I’m going to take the 3 bed over the 2 bed every time. There is much more demand for 3 bed houses than for 2 beds.”

If you have to choose between a 2 bed and a 3 bed

Answer: “Unfortunately, the answer that question is yes. That 91-day rule applies to any properties that you have purchased.

If you have purchased a property you intend to fix and flip, you need to pay special attention to this rule if you want to get paid for your work as a rehabber. FHA is currently backing most of loans for retail buyers.

Your contracts must be dated after the 90th day of your ownership of the property. If they are not, FHA will kick out the contract.”

4. Simple solutions are often the best.  When you are making changes to the layout, you have to balance functionality with cost.  The more walls you move, the more plumbing you have to relocate, the more your costs increase.  Be smart about where you spend your renovation money. 

5. Focus on your goals for the property, and let those intensions guide your decission making.  For the house you have in the neiborhood in which it is located, you must determine the optimal layout for the house.  For example, you may decide that you need to convert a living area to a bedroom. 

6. Think long term.  Make your cash flow properties durable.  Make the repairs that will SAVE you money over time.  For example, turn over is expensive.  Don’t scrimp over energy saving measures, such as adding additional insulation to the addic. 

7. Don’t overdo it.  Don’t tear out / update items that don’t really need replacement.  For example, just because you have 40-year old electrical components does not mean they need to be replaced.