Monday, April 09, 2007

Putting Money Into a Rental

Here's a real New York money-spending issue: how much you should spend to improve a rental apartment. I've been thinking of this ever since I visited an apartment my friend Mortimer was thinking of renting-- I could see immediately why he wanted a second opinion. The rent was relatively cheap for the size of the space, and could probably be negotiated down even further. Why? Because the apartment was a dump.
Maybe dump is too strong a word, but truly the place was in horrible shape. There was a thick layer of dust all over everything, the paint was grimy, and there was an unspeakably filthy old carpet in the hallway. You could tell that whoever had maintained it over the years was not very handy-- there were random screws and hooks in the walls in strange places, and a small window by the door had been boarded up. The bathroom was in a sort of shed that had been built onto the back of the house, with just a rickety, leaking shower stall. In the kitchen, you could see through a gap by the baseboard into the basement below. The upsides were that it had access to the backyard, and... well, maybe that was the only upside.
The sad fact is that rents are so high here that people will actually consider living in such places just to stay more or less in a desirable neighborhood. This apartment was maybe 1 block from what many people consider the border of Park Slope. It was near the subway and plenty of stores, and walking distance to plenty of restaurants in the Slope. In Park Slope itself, you can easily pay $1,600 a month for a studio and $2,000 or quite a bit more for a one-bedroom.
So thinking he could get a one-bedroom with outdoor space for maybe $1300 or so, Mortimer was seriously thinking about this place. "You see what I mean when I say it has potential, right?" he asked me.
I did see that it had potential. If you could gut-renovate the place, you could turn it into a cute apartment that only had a couple of compromises. Even just cleaning, painting, and ripping out that horrendous carpet would have done a lot. But I said to Mortimer "How handy are you? And do you really want to put a lot of money into fixing up this place? Because the landlord's answer to those questions would obviously be NOT AT ALL!"
Since Mortimer isn't handy and doesn't have the money to spend either, he decided to steer clear of the place, and has since found a much nicer, renovated apartment in a further-out location. But someone will eventually rent that place, I'm sure. Lots of New Yorkers ARE willing to spend a lot of money fixing up property that belongs to someone else. When I was a senior in college, I helped some friends who had just graduated move into an apartment in Park Slope, back when the character of the neighborhood was still quite different. We painted, ripped out carpet, and installed new linoleum tiles in the kitchen, all stuff that cost maybe a couple hundred dollars. In my own former rental studio, I replaced the toilet seat myself, caulked the tub myself, and bought a ceiling fan with my own money and asked my landlord to install it. But all that cost me only about $50. If anything else needed to be done, I asked my landlord, as he did take good care of his building even though he procrastinated a lot on minor repairs.
Then you have people like my cousin (the one that SingleMa said "rode the financial short bus.") Some years ago, she and her boyfriend, with the help of some carpenters in the family, re-did the floors and put in a new kitchen and bathroom in their apartment. When their landlord saw how nice they'd made it, he hiked up their rent at the first opportunity!
Some New Yorkers are probably smarter about negotiating rent discounts or long leases in exchange for their sweat equity, but I'm sure there are many others who just do what they want to do and hope for the best. So many people here are style-conscious types who work in artsy, design-y fields, and even if they can't afford to buy apartments, they want some control over their homes. Also, given the space constrictions we face, it's no surprise people often create built-in shelves and loft beds that sometimes have to be left behind for the next tenant. And then there is the special case of rent-controlled or rent-stabilized apartments. When an apartment that has been occupied by the same family for decades, leading to a way-below-market rent, of course the landlord doesn't want to spend a penny on improvements if he can possibly avoid it. And of course that tenant is going to want to stay in the apartment for as long as they possibly can, and the money they're saving on rent makes it worthwhile to fix a few things themselves.
One of the more spectacular examples of a renter-reno was blogged over a 9-month period on Apartment Therapy. In the comments on a post called "9 Month Cure: The Money," there was a lot of discussion about the fact that the renovation coincided with the tenants expecting a baby, but it took a while for anyone to bring up the issue of investing that much money in a rental:

I'd like to address the money issue. From what you say it seems like you are renting your current place, yet you are going to renovate your kitchen at your own expense? Why would you do that when you think you might move soon? Why not take that money (which would probably be at least 10k) and put it towards a downpayment?
Another commenter took a different tack:
I have renovated my apartment a fair bit, with some supplies paid for. But I would have done it even if I had been paying for all the supplies. Why? Because the cost of buying versus renting in my city has reached such crazy ratios that the cost of my rent is less than the cost of interest, taxes, and maintenance if I were to buy a similarly sized apartment in the same neighbourhood. Note that this does *not* include any principal repayment. I wasn't in a position to buy a few years ago, and it turns out I'm still not, despite being a fair bit better off financially.
People spend money on all kinds of experiences to make their lives fuller - travel, restaurant meals, theatre tickets. What you have are the memories. Any money I spend on renos is similar - I get the pleasure of living in my space for several years.

I wonder how many millions of dollars must be spent each year by tenants to improve rental apartments. How much would you be willing to spend?


savvy saver said...

Reading your post reminded me of something my RE agent told me when I was looking at rental properties, "There's a renter for every type of home. You might be surprised at what people are willing to put up with for cheap rent." He was right, I looked at houses and building that were absolute disasters, but had great rental histories.

Lola said...

Congrulations on your very interesting blog. I'm from Brazil, and here talking about money is a big taboo. Even though your cost of living is way higher than mine, it's still worthwhile to read your financial experiences. Thanks!

Escape Brooklyn said...

Ick, I wouldn't spend a penny to fix up a rental - save that money to buy your own place. Course, that's easier said than done in NYC, where 70% of people rent.

mOOm said...

Of course in commercial real estate it's normal for tenants to improve the property. I've never done anything except fix simple things, like fill cracks around windows, install blinds etc. And it's not like I have a desire to do more stuff. I guess the places I have rented are pretty nice, but maybe the fact I am happy with them points to why I'm not interested in buying a house/condo.

Hazygrey said...

I tend to pay more to rent higher end apartments, then at least everything's in great shape and the paint is new. I'm sure I could have saved a couple of hundred a month for a similar place that wasn't as well maintained. Since I'm already onto my third year at my current rental, it means I could have chosen to go that route, spent a couple of thousand on improving the place and still come out ahead. Since I'm not very handy that would not have been a good choice for me but I guess would have been a financially better choice for many people.

English Major said...

My boyfriend and I haven't done much to our place--though we are considering installing shelving in our bedroom and closets, which would probably cost more than a hundred bucks and would stay behind when we leave in a year or two. But as it is, we don't like the way things pile up without proper storage, and we're willing to pay (at least a little) for our own comfort. What we're not willing to do is paint, with the knowledge that we'll have to repaint before we leave.

Rachella said...

I always pay the least I can get away with, then fix the things I can't stand to live with, yucky toiley seats and no storage. I still end up saving money, because the rent is much cheaper than the cost of fixing a few things. My non-handy friends are always quite surprised at how I can improve the place by adding a few towl bars, a coat of paint and few cheap shelves.

frugal zeitgeist said...

When my ex-husband and I separated, I swapped out the lock cylindar and that was about fifty bucks. Other than that, I wouldn't spend one red cent to improve someone else's property.