The Cheapskate's Guide to Kitchen Renovations (+ Rental Income Report) (2024)

Some people are addicted to booze; others gambling.

Me? Home renovation.

Three months ago, we finished a $13,000 remodel on Rental House #4. To celebrate, we told ourcontractor todemolisha kitchen in a different house.

Call it a victory lap. 🙂

We’re renovating House #2, and we’re coordinating everything— from demolition to final clean-up — through email, phone and text messages.

We haven’t set foot on the property.

Our contractor texted us this drawing of the kitchen.

While our contractor is tearing out floorboards, we’ve beenracking up frequent-flyer miles.

(By the way, scoring frequent-flyer miles is the best way to avoid paying for flights. Here’s an up-to-date list of the travel cards with the best sign-up bonuses; this list gets updated every week, and the cards that you’ll see at the top of that list will give you enough miles to fly for free, round-trip, to anywhere you want.)

We’re as far away from the properties as possible (without visitingMars.)

(Yet.)

Here’s a recent sleep-deprived snapshot after a red-eye toShanghai:

“Your property is under renovation, while you’re hailing taxis inAsia?”

Yep.

“But …. how?”

This is possible for two reasons:

Reason #1: Homeownersandinvestorsare not the same species.

I’ve watched my friends, in the middle of renovating their own homes, grapple with existential quandaries like, “what color should we paint the dog door? Olive or khaki?”

That’s a vexing question for your own home, to be sure. But investors think differently. Webuild systems rather than browse Pinterest.

For example, we’ve startedusing the same paint color on every property — a strategy that minimizes waste, reducestracking and streamlines touchups.

Investorshone this approach for a simple reason: we don’t want to work more than necessary. My investmentshum in the backgroundwhile I focus on my true passions — reading, writing, traveling, staring absentmindedlyinto space.

I waste more timescrollingTwitter than I spend managing my investments.

Reason #2: Scope, Systems and Strong Team

The second reason is thatI’ve focused on a simple formula:

Hire talented people
Give them a detailed scope of work
Get out of their way

(This works best for remove-and-replace jobs. If you’re re-designing the floorplan/layout, you’ll need to make a trip.)

We’ve nailedthis strategy (hehe, pardon the pun) manytimes. Two years ago, for example, weinvested$15,000 into renovating House #5. We managed this projectby text messagefrom California and Brazil.

Today we’remanaging the House #2 renovation from Nevada and Nepal.

Okay, “managing” is an overstatement. We listened to the contractor’s recommendations, approved everything that sounded reasonable, and … well, that’s about it.

Then wehopped on a flight to Kathmandu.

Meanwhile,this happened —

In today’s article, I’ll dive deep into how to save thousandson kitchenrenovations. Well, kinda.

“Kitchen renovations” is a giant topic, and I’d rather go deep than wide. So this article will focus specifically on how to save hundreds oncabinets, countertops and flooring.

I’m excluding other components — like electrical, plumbing, etc. — to limit this article to less than3,200 words. I’m aiming these tips at rental investors, although I hope that anyone can benefit.

I alsodisclose our past three months ofrental incomeat the bottom of this article.

Here we go:

How to Save Hundredson Granite Countertops

Granite countertops are synonymous with ‘fancy.’

But here’s a secret:you can install granite countertops for less than $500 in materials.

Size Matters

Granite is a natural stone that’s quarried from the earth. Large slabs of granite are a pain-in-the-butt to transport and install. Smaller pieces are easier.

Result? Granite slabs are expensive, but granite tile is an order of magnitude cheaper.

Here’s an example of a large slab. Imagine the cost of finding, quarrying and transporting this monstrosity:

You can get the granite “wow” factor for a fraction of the price by installing granite tiles, which are typically sold as 12×12, 16×16 or 18×18 inch squares.

We used granite tiles when we remodeled theAirbnb unit, for example. Here’s the result:

How much will this cost? Let’s calculate:

The average kitchen holds 30 linear feet of countertop space.
Add an extra 20% (36 linear feet) to prepare for waste/overages.
This granite tile costs $2.69 per square foot (psf) as of the time of writing.
Result? You couldinstall granite tile in an average kitchen for$100 in materials (excluding mortar, backer board and bullnose).

Can I repeat that? $100. For a kitchen full of granite. Score.

In fairness, $2.69 psf is the cheapest example. I’ve found many colors/sizes at $5 to $7 psf, which would cost $180 – $252 in an average American kitchen.

Suggestions:

Optfor the 16×16 or 18×18 squares. Thesecreate a nicer finish by minimizing seams.
Lay the squares in a diamond pattern(also called diagonallayout). Thisalso createsamore upscalefinish.
Use leftover tileto create a bullnose and backsplash.

Cut

If you want continuous (non-tile) granite countertops, you have two options: prefabricated or slab.

Pre-fab is the “off-the-rack” edition. It’s cut and polished overseas, holdsmore visible seams than a custom slab, and comes in fewer colors. But it’s significantlycheaper, while retaining a ‘wow’ factor that attracts tenants. It’s the better choice for a rental property. (And if you’re lucky, you might find clearance-sale prefab that’s cheaper than tile.)

Color

Common granite colors are called“builder grade.” (That’s slang; not an official title.) These are some of the most commonly quarried stones, and — due to their abundance— they’reinexpensive.

Examplesinclude Baltic Brown, Ubatuba, Santa Cecilia, Venetian Gold, and my personal favorite, Blue Pearl (which looks amazing paired with white IKEA cabinets).

Edging

Countertop edges can be flat, rounded, sloped, or so-fancy-it-attracts-paparazzi.

Get thecheapest style. Don’t botherupgrading; it won’t yield rental returns.

As aninvestor, focus on the “80/20” upgrades. Laminate vs. granite canimpact your revenue, but a standard edge vs. a flamboyantedgewon’t do adamn thing to enhanceyour bottom line.

How to Choose a Durable Flooring Surface

Science lesson:

If an object dragged across a floor is harder than the floor, then the floor will get scratched.
If an object dragged across a floor is softerthan the floor, then the object will get scratched — not the floor.

Eat it, Isaac Newton.

The takeaway? Since goal #1 is durability, choose dense flooring surfaces. Examples include:

Porcelain tile
Some ceramic tile (not all)
Rubber vinyl / vinyl plank
Natural stone (e.g. slate)
Edge-grain bamboo (NOT face-grain bamboo)
Solid hardwood

Awesome. These meet our durability standards. Next step: sort by cost.

Stone, hardwood and edge-grain bamboo are expensive, so we’ll eliminate these options. Porcelain, ceramic and vinyl plank are cheaper, so I have my contractorshop in those aisles. We’re using 6″ x 36″ porcelain tile planks in both House #4 and House #2. The price and durability of porcelain + the‘wow factor’ of hardwood = score.

Here’s how this looks in House #4:

Where should you buy this stuff?

Hint: Not the big-box retail chains.

The big-box retailers are great forbasic materials like 2×4’s, screws, plywood, backer board and mortar. But shiny surface materials that people notice — like carpet, tile, faucets, appliances — are typically cheaper elsewhere.

(Like, MUCH cheaper elsewhere.)

Here are a few of my favorite suppliers:

Amazon —I’ve bought fans, faucets, and even a gorgeous kitchen sink here. Highly recommended.
Overstock — Ditto, especially for lighting.
Floor and Decor — Hands-down, this is my favorite flooring store.
Sears Outlet — The keyword is “outlet.” They sell scratch-and-dent appliances at an excellent cost.
Brandsmart — Worth checking out if you don’t live near a Sears Outlet.
Habitat for Humanity ReStore — Nonprofit home improvement store. Can be a source of cheap deals, but not systematic or reliable.
Local mom-and-pop discounters — Google the name of your area + “discount” + a specific item like carpet. You’ll often findhidden gems.
Build [dot] com— Meh. It’s okayfor higher-end fixtures. Avoid this for Class B or Class C rentals.
IKEA — Avoid their granite and appliances. Heck yes to their cabinets.

Speaking of which …

The Best Place to Find High-ValueCabinets

Cabinets are sold in three tiers:

Stock — Off-the-shelf supply. Cheapest.
Semi-Stock — Shipped in a few weeks. Mid-price.
Custom — Built to your specifications. Expensive.

Here’s a quick rundown on materials:

Particleboard – Made from wood shavings pressed together. Cheap. Least-durable.
MDF – Made from engineered wood. Mid-price. Durable.
Plywood – Durable. Expensive.

Several years ago, I Googled the name of my area + “outlet” + “discount” + “kitchen cabinets,”and found adiscount mom-and-pop supplier.They sold wood semi-stock cabinetsat an equivalent price as IKEA’s stock particleboard cabinets.

Great find, right?

Eh … not so fast. Simple is better than complex. When applying this lesson to cabinets, remember that simple = in-stock; complex = shipping.

I learned this lesson the hard way. Anytime you order an item, you risk a possible delay. That’s not a risk that you should take lightly.

If the cabinet shipment is delayed, the entire project can stall for a week or two. And if a house rents for $2,000 per month, atwo-week delaycosts $1,000 in lost revenue. Ouch.

In-stock wins the day.

Lessons at the 30,000-Foot View

How should youmake decisionsabout remodeling jobs?

This isn’t a rhetorical question. Framework matters more thanstrategy, and strategy matters more thantactics.

Here’s what I mean:

Tactic= How to catch a fish.
Strategy = How to optimize fishing.
Framework =“Should I fish?”

Learning how to think about an issue(framework) is more important than decidingwhat to do(strategy), which itself is more important than knowing how to do it(tactics).

I’d rather teach you how to think than tell you what to think. Of course, there’s only so much I can impart in a single blog post. But I’ll start with twoideas:

#1:Don’t Be Afraid to Iterate.

You can renovate to the standards of “viable,” “optimal,” or “excessive.”

Your choice between the toptwo options depends on (#1) your budget, (#2) your experience, and (#3) the strength of your team. It’s okay tocreate a “minimum viable” space now, and uplevel in a few years.

Four years ago, we executed a “minimum viable” remodel on House #2 to prepare theproperty for its first tenant. We installed cheap, flimsy carpet. We slapped laminate countertops atop 30-year-old cabinets. We didn’t build-to-last. We built-to-get-this-damn-thing-to-market.

Today, we have a stronger team, more knowledge and a more flexible budget. We’re renovating the house to a higher standard, and we’re coming at this from a position of strength.

Lesson?Don’t be afraid to iterate.

#2: Optimize for the Top of the Price Range — But Not Higher

Properties don’t rent for a fixed price, they rent within a price range.

Ifsomeone says “this house could rent for $1,600 per month,” that house mightrent for $1,400 – $1,800, depending on its condition, seasonality, lease term and a slew of other variables.

When you’re renovating a property, shoot for the top of this range — but not higher.

As an investor, your job isn’t to hammer nails — it’s to make decisions. Your firstfive-figure decisionwill bejudging the line between “optimal” and “excessive.”

What’s worthwhile? And what’s a total waste?*

[*Tip: Don’t apply those questions to your dating history.]

Many investors try to solve this with a straight-line ROI calculation — “will this upgrade increase the rent?” But that thought process is too simplistic. Rent and occupancy are inversely correlated; if your rent is $1 per month, your occupancy will be 100 percent. Conversely, ifyou ask for$1 million per month, your occupancy will plummet to zero. (Unless you own anultra-luxe house, in which case, call me.)

The question isn’t “could this upgrade increase the rent?” but rather — “couldthis upgrade make the property more competitive?” Even if you can’t increase the rent, could you lower vacancy? Attract higher-quality tenants? Get multiple applicants? Improve retention? Reduce turnover?

Those are tough questions. They require judgment and subjectivity. They can’t be deduced withspreadsheets.

This isthe art of investing.

Rental Income Report – Aug, Sept and Oct

I could write for daysabout renovation cost-cutting, but I’ll pause here.

Let’s reveal the Rental Income Report from the past three months.

If you’re new to this website, here’s the background:

We own 7 rental units. These generate around $10,000 per month in top-line revenue. After expenses, the properties bottom-line (net cash flow) roughly $3,000 – $6,000 in a typical month (when we’re not renovating).

We average 3 to 5hours per month (1 hour per week) managingthis portfolio. You can read the history-at-a-glance here.

Rental properties give us thefreedom to stop worrying about day-to-day expenses. We could retire in Bali tomorrow. Personally, I’m a Type-A serial entrepreneur — that’s how I’m wired — and now I can take risks and embrace failure,without feeling pressure to put food on the table. This peace-of-mindhelped me buildthis website and my podcast, among other ventures.

I enjoy teaching others about the benefits of rental investing. But over the years,I’ve heard many readers voicemisconceptions about rental investing, ranging from“that’s a full-time job!” to “wahoo, free money!” — neither of which reflect reality.

Rentals areneither as bad nor as good as many people assume.

To quash these myths,I decided to publicly disclose the income, expenses and hours per month that we spend managing our rentals. I hope thisno-holds-barred case study helpspaint a more realistic picture.

If you’re new to these reports, please read the FAQ HQ, which answers many more questions.

Here we go:

August 2016

In August, we netted around$4,400 (after expenses) with 6.5 hours of work. Wahoo! Here are the specifics (each link below opensthe history of that property).:

Unit 1, Triplex: $2,915
Unit 2, Triplex: $1,490
Unit 3, Triplex: $1,330
House #2: $850.50
House #3: $1,273
House #4: $0 (listed on the rental market at the start of the month)
House #5:$707.00 (after minor maintenance deductions)

Total Income: $8,565.50

August’s gross income is $8,565.50, after management fees and small repair deductions. What about other expenses?

Mortgage, PITI for Multiple Properties: $3,182.64
Mortgage, Part II: $583.33
Lawn Care and Maintenance: $221.86
Water: $176.48
Home Depot: $14.62
Total Expenses: $4,178.93

Thismeans ….

August 2016 Net Cash Flow: $4,386.57

Time Commitment:6.5 hours

We finished renovating House #4 in July and started marketing the property in August. We spent 6.5 hours reviewing and updating our marketing materials — the listing, canned responses, open house material, etc., plus replying to a few emails about the triplex.

Overall, I’d call August a great month! Let’s move to September …

September2016

Renovations started on House #2 in September. Dun-dun-dunnnn! Prepare for negative territory. We dug into the business coffers, spending several G’s upgradingHouse #2. Here are the numbers, laid bare for your amusem*nt:

Unit 1, Triplex: $2,915
Unit 2, Triplex: $1,490
Unit 3, Triplex: $1,330
House #2: $763.38 (our property manager sent us the final payment)
House #3: $1,273
House #4: $0
House #5:$840.00

Total Income: $8,611.38

September’s gross income is $8,611.38 after management fees. What about expenses?

Mortgage, PITI for Multiple Properties: $3,182.64
Mortgage, Part II: $583.33
Property Taxes: $507.43 (partial payment for a housewe own free-and-clear)
Insurance: $116.00
Lawn Care, Gutter Cleaning and Pest Control: $284.00
Water: $139.52
House #2 Contractor Labor: $5,300
House #2 Materials: $4,536.92
Credit Card Annual Fee: $95.00

Total Expenses: $14,744.84

Thismeans ….

Cash Flow:$-6,133.46

Negative, baby!! It’s renovation season! Okay, what about time costs?

Time Commitment:8 hours, 45 minutes

We spent an hour reviewing and updating the House #4 lease (and signed a new tenant!) We also invested 2.5 hours replying to emails and calls related to thenewly-renovated House #4.

Meanwhile, House #2 became vacant, so we planned a kitchen, bath and whole-house-flooring upgrade. It’s a simple remove-and-replace job, which means we’re not changing the floorplan or layout. This makes the remodel much easier than House #4.

Given the limited scope of work, simplicity of the propertyand the fact that we’refresh off anotherremodel (our skills are sharp!), we planned theHouse #2 remodel in just 2 hours. That’s a new record low. We spentanother 2.5 hours coordinating specifics with our contractor, such as listing thepreciseitem numbers he’d need at IKEA, etc.

Finally, we spent 45 minutes coordinating lawncare andpest control on House #1 (the triplex).

TL;DR — We spent 8.75 hours managing our rental portfolio in September, and we invested heavily in upgrades — leading to negative $-6,133 in September’scash flow.

Ready for one more month? Here’s October:

October 2016

Unit 1, Triplex: $2,915
Unit 2, Triplex: $1,490
Unit 3, Triplex: $1,330
House #2: $0 (under renovation)
House #3: $1,273
House #4: $1,795
House #5:$0 (tenant late; ourPM is handling everything)

Total Income: $8,803.00

What about expenses?

Mortgage, PITI for Multiple Properties: $3,182.64
Mortgage, Part II: $583.33
Insurance: $199.44
Lawn Care, Gutter Cleaning and Pest Control: $105.00
Water: $164.16
Office Supplies: $84.78
House #2 Contractor Labor: $5,500
House #2 Materials: $3,801.01

Total Expenses: $13,999.01

Leading us to …

Cash Flow:$-5,196.01

We’veinvested $20,000 into the House #2 renovation ($19,137, to be exact) in the past two months.

If you’re a longtime reader, you might remember that we bought House #2 for $21,000 and spent $10,000 improving it to viable, rent-ready condition. After thesepast two months, our total investment in House #2 is a cumulative$50,000.

Not bad for a property that rents for $945 per month.

Time Commitment: 4.5 hours, almost entirely coordinating with the contractor (and a little bit of chatter with the triplex tenants).

Bottom Line

Most real estate “gurus” only talk about top-line revenue. “I collect $10,000 in a month!,” they’ll proclaim.

Great, but how much do they spend?

I’m not a “guru;” I’m just an ordinary investor with access to the Internet. When I write, I prefer to show you acompleteset of numbers — our income and expenses — and contextualize this with thetime commitment that’s involved. You’ll get a fuller picture, I hope, through thisfirst-personcase study. And you can drawyour ownconclusions.

One word of commentary, though, about thepast fewmonths—

We’re reinvesting, and this yieldsnegative cash flow in the short-term. Don’t let thisscare you. Rentals are a long-term game. More accurately, ALLbusinesses and investments are a long-term game.

You might spend years building a website, product or service before it’s profitable. You might hold onto an index fund for decades. You mightinvest years into gainingtheeducation and skills that evoke the promise of a better life.

Quick-hit, get-rich-fast promises are either risky, hollow, or both. The question I’d encourage you to ask yourself isn’t “what’ll get me a private jet the fastest?,” but rather, “what’s a solid long-term plan for my future?”

Maybe it’s rentals. Maybe it’s not. But as I saidearlier in this article, your mental framework is far more important than anytactic.

You might not know the answers yet. And that’s fine — as long as you’re asking the rightquestions.

>> If you made it this far, you’re a little interested in rental properties. C’mon, admit it.

>> If you’re reading this, join the free VIP List. You’ll be the first to hear when enrollment opens again for Your First Rental Property, our premier real estate investing course. <<

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Image courtesy Flickr.