A Formula for Dealing With Tenant Upgrade Requests

My husband and I recently turned down a tenant’s request for blinds in the living room of one unit of a triplex. (They were unhappy with the “dirty curtains” on the window.) At the same time, we agreed to put a new toilet in another unit.

Our tenants can easily figure out that we’re bringing in nearly $4,000 in rent per month ($1,000 positive cash flow for us) from this property, so they may think we’re being stingy when we refuse their requests for improvements. It’s a business though, so we grant tenant requests only if spending the money will generate more revenue or reduce our costs.

We consider a few things:

• What are the costs of not doing the renovation or upgrade? (Is the tenant likely to leave – and what will that cost us if they do?)

• Is there another way to address the problem?

• Can the expenditure be delayed?

If the expenditure seems to make sense, we do a final calculation:

Total Cost of the Upgrade or Renovation / New Money Earned (or Money Saved) each Month = Number of Months It Will Take to Recover Our Costs

As a general rule of thumb, if you can recover the cost of items under $1,000 in 12 to 18 months, the money will be well spent.

In the case of the blinds, the tenant wouldn’t pay more rent to help cover the cost. And since only custom blinds would fit the large windows in that unit, it would take years and years to repay the expense… even if they did pay us more rent. Instead, we agreed to pay for dry cleaning the curtains, which cost less than $100. We’ll get no direct return on this investment – but since the tenants wanted the “dirty curtains” replaced, this will keep them happy.

In the case of the toilet, we decided that getting rid of the grungy old one would not get us higher rent but it would make it easier to attract and keep good tenants in that unit. And by replacing it for the current tenant (instead of waiting until they moved out), the tenant’s father (an experienced plumber) would install it for free. Plus, we’d be replacing a water guzzler with a low flush model that would qualify for a $75 water conservation rebate from the City of Toronto. The formula of benefits looked like this:

$250 minus $75 rebate = $175 Cost of the Toilet

$175 / $10/Month in Water Savings = 17 Months to Pay It Off (not including the $80 saved on installation)

This made replacing the toilet a very appealing use of our cash.

Just remember – real estate investing is a business, and you need to get a return on any money you spend… even if that return is simply in cost savings.

Comment on this article