Due to external factors such as significant capital gains tax exposure many people are choosing to rent out their homes versus selling. The more forwarding-thinking people are employing a strategy where they rent their property for two years or so, then sell their property (maintaining their IRC 121 & 1031 benefits) and exchange into another more potent cash cow. After all, in California a real property sale can trigger a 38% tax hit the following April due to capital gains issues – assuming one’s gains are greater than the IRC 121 exemption of $250,000 for a single person or $500,000 for married couples. Thus, many people are renting by themselves or through a property management company to preserve their tax efficient options. Below is a quick hit list of easy and inexpensive design ideas which may help you separate yourself from your competitors who have also listed their homes on the rental market. Importantly these improvements and/or expenses are either tax deductible against rental income or depreciable.
Curb Appeal is Critical
You never get a second chance to make a first impression so make sure the first one dazzles as the potential tenant pulls up in their car for their initial visit. Fresh landscaping, fresh exterior paint, fresh plantings, automatic sprinkler systems and a gardener that comes weekly are all great ideas to improve curb appeal and entice the potential renters into the house in the first place.
Paint is an Efficient Improvement
Nothing says “fresh” more than a new coat of professionally applied paint, both interior and exterior. Painting is clearly one of the most efficient and beneficial home improvements one can make, and you shouldn’t hesitate to do this improvement. Neutral colors with bright accents are all the rage. White walls and different off-white trim and ceiling accents are critical to make the rooms “pop” and allow the room occupants to feel like they are in a well-lit environment. Flat grays and neutral blues can provide optimal and trendy accents.
Kitchen Improvements Provide Competitive Advantages
One of the first things a potential renter sees inside the rental home is the kitchen – and for good reason as they are anticipating spending significant time preparing and eating meals there. A well-functioning kitchen with a gas cooktop is a must for a gourmet cook. A suitable microwave and ample counter-space is another top priority. Finally, above average appliances make a potential renter happy and will help separate your property from the older properties on the rental block. Some inexpensive kitchen upgrades include painting older cabinetry – to brighten the room – adding new door knobs or pulls, and adding new flooring.
Bathroom Changes Make a Difference
After you’ve painted the bathrooms consider replacing the older cabinetry with a bright, new pedestal sink new plumbing fixtures, and improved lighting. Making your bathrooms fresh, bright and appealing will make the rental feel like a hotel – which is a competitor believe it or not. Always consider installing an efficient low-noise bathroom fan to improve ventilation – especially for older homes.
Clutter Removal is Key
Never show your rental with clutter. Better yet, it is more practical/professional to have a completely empty property than showing a property with occupant belongings – that are not professionally staged. Although staging is an expensive proposition it should be considered if your property is at the upper end of the rental market, i.e., greater than $10,000/month rental price. Another great idea is to create a floorplan with dimensions that can detail for a potential tenant what furniture they will be able to shoe horn in the rental. A floorplan can be created with several online apps and will take about 10-15 minutes to create a good-looking professional document you can handout or send via email. Quality professional property managers do this as part of their listing services.
Renters sometimes judge a book by its cover and the photos you post with your rental property advertising can make or break your showings. As with anything ‘A Picture Tells a Thousand Words’ and is never truer than with rental real estate. Don’t take photos with a camera phone as they pale in comparison to a professional camera with a wide-angle lens. Try not to have anything other than the realty in the photos, i.e., no animals, no people, no dirty laundry. Make sure to include all the relevant portions of the property including the yards, the garage, the amenities. Any areas of the property that are excluded with be questions you will be expected to answer.
The Consensus says Improvements are Critical to be Competitive
Capital gains tax exposure are forcing many people to rent out their homes when they previously would be selling. The rental marketplace is competitive, so you need to prepare your property to maximize exposure, and garner as many showings as possible. The quick hit list of easy and inexpensive design ideas we identified above can help you have an edge over your competitors who are also trying to rent their homes. Remember that improvements and/or expenses are either tax deductible against rental income or depreciable so keep accurate records. If you employ a professional property manager, they can help you with this process including the record-keeping tasks. If you would like further property management advice or have questions don’t hesitate to contact us at Silicon Valley Property Management Group.
David currently is the broker/owner of Silicon Valley Property Management Group (SVPMG) which manages 150+ client properties on the San Francisco Peninsula.Trust, transparency, and performance guarantees are the foundation of SVPMG. David challenges anyone to find a PM company that offers services similar to the extensive education, customer service, and performance guarantees provided by SVPMG.
David also provides consulting for his clients on property development feasibility, construction, and complex real estate transactions.
David has authored a published law review article, two real estate books, and over 120 real estate blog articles.