One issue that seems to be cloudy for a lot of rental investing landlords is whether it’s useful to include a washer and dryer with your rental and marketing. In this article, we’re going to discuss
- Whether it’s worth it or not
- Who could most benefit
- How to handle the repair issue
I guess the first question we have to ask is what is considered useful? In our view, we prefer a standard ROI or return on investment assessment when possible. Here is the formula for figuring this return. What is considered a good return is highly debatable and usually centers around interest rates and their expected course, but I think we can all agree that these days it’s tough to find a safe, phenomenal investment. We commonly see rental properties that would likely pay back all cash invested within 3 years, so something noticeably better than that should be expected.
Unfortunately, many landlords are so confused by this new tax they wouldn’t know how to contest it. Take it from us. We have been contacted by a multitude of confused and furious landlords asking for help on the matter. In the example we gave above, that landlord mistakenly thought they would be required to pay taxes on a mounted microwave, mounted tv bracket, dishwasher, and a few other items. To make matters more confusing, the county seems to be actively blaming property managers for the confusion they are spreading and offering no helpful insight to questions. We have had several owners contact us extremely upset stating that the county implied it was us who had created this nightmare. By knowing exactly what constitutes personal property, you will have the tools necessary to mount a reasonable defense.
The return on investment formula…
ROI= (Gain from Investment – Cost of Investment) divided by Cost of Investment
One of the common criticisms of using this measurement is that it doesn’t cover time exceptionally well. We feel that’s minor for most issues in our business and is more than offset by the simple elegance. However, to keep things even simpler, let’s consider this question based on a 2-year outlook. In both major markets where we operate we’re able to purchase used units with a 6-month warranty for $350 delivered (about $29 a month for 12 months). For our purposes, we’ll use these figures. Later we’ll discuss who might benefit from including those fancy new high-efficiency units.
Now let’s talk return, or gain from this investment. It’s not an exact science to quantify this figure, but we’ll touch on some approaches.
The average furniture rental company would charge about $40 a month for a basic set, so if you pay $29 a month, and rent for $40, that would be an $11 return, or about a 37% return on your cash invested.
More to our subject is the potential benefit to your leasing situation. There are two main avenues for profiting from a washer & dryer.
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Does it increase your rental rate?
Does it cause your home to be rented faster?
There are also other possible options such as renting the units to your tenant separate from the lease, but we prefer to keep our management simple. In the end, the result is basically the same without the extra work.
Regarding a potentially higher rental rate, we like to apply the common sense test. If two units are exactly alike, and one unit does include, and one unit doesn’t include a w/d would we expect to get a higher rate for the one that does? Absolutely, and in our experience, this is exactly how it would play out. Let’s discuss why the average renter (not luxury home renters) would likely love to have a washer and dryer included to the degree of happily paying a higher rent.
As homeowners, you likely don’t move much. Renters, however, move all the time. Particularly Millennial renters, regardless of financial status. One of the most difficult and awkward pieces of furniture to move is the w/d. Unlike high earning renters, the average renter typically handles their own move, or ropes friends into the task. That makes this particular task exceptionally untenable. Moving washers also bring huge risks as one of the more common problems we run into after a new move-in is having a water supply hose cross-threaded or springing a leak, often with major consequences. Another problem for the average renter is getting these items repaired. Even our company struggles to find reasonably priced appliance repair companies, so we know it’s nearly impossible for most tenants. The average chain such as Mr. Appliance will almost surely charge at least $200 for any real repair. Another major drawback for renters is the upfront cost burden that comes with moving. Even for renters who handle their own physical move (an act that has cost even though it’s not obvious), moving is usually very tough on the finances. Often you have to pay a deposit before your old one is refunded, rents typically go up these days, utility deposits do as well, not to mention fuel, loss of production due to packing and unpacking, and a million other issues that add up significantly. The bottom line, you have to have a lot of spare cash to move. Finally, matching an existing dryer plug can be a costly, irritating and risky problem. Even after being forced to buy a set, most avg renters would prefer to sell theirs rather than move it and apply those funds to their pinched finances. For these reasons average renters hate owning their own w/d, we can say this with confidence. If you were in their situation, wouldn’t you see these issues as a huge pain? Now I know what you’re saying. The cost maybe $29, but what about that $200 repair you just mentioned! Keep in mind I said the average chain would charge that much. While we struggle to keep those costs down, we would normally close to half. We feel that for a good tenant, repairing a w/d
Note: Don’t forget to consider tax savings. You will be able to deduct the cost of your purchase or repair likely saving a fair amount on taxes
is the smart thing for a landlord to do. They will respect you and your home more, will be less likely to leave, and more inclined to accept a rental increase when they make sense. In our case, we write into our leases that tenants must pay the repair on w/d since they are considered more of a luxury item than say a fridge. With that said, we do occasionally receive a surprisingly passionate push back from that approach, and as we mentioned for excellent tenants we fill the smart and reasonable thing to do is to alleviate this objection and consider it a cost of doing good business with a good tenant.
With that said, washer and dryer repairs are one of the rarest issues we have to deal with, and per 100 units that we manage, we typically spend about $500 per year. Most of this is for smaller condos that require a stackable unit, something that almost has to be included given their drawbacks and the effect that will have on your rental rate.
So demand is clearly high, and costs are relatively low. Given our 10+ years of experience in the long term rental business, we feel that the average property will earn 5% more on their rental rate when including a w/d/. In both our markets the average is about $1100, meaning $55 more per month. If you’re skeptical of that figure, and it would fluctuate as the rental rate deviates, there is another huge benefit we need to discuss.
Don’t forget vacancy!
The hidden cost that far too many landlords fail to understand properly, is a major risk for average properties that don’t include a w/d. To put this in perspective, we often use the following equation to put the pricing question in perspective for novice rental investors.
Avg rental = $1100 divided by 4= #275 per week, or divided by 30 = $37 per day. THIS IS THE ABSOLUTE COST of having your home sit empty, not including utilities or vacant management fees many of our competitors charge.
Furthermore, it is a fact that vacant houses somehow tend to degrade faster than those that are occupied (we have the data), and the risk of a flood or other major problem going unnoticed skyrockets. Therefore it is our belief that vacancy should be abhorred above all else. Despite this many landlords focus more on rental rate, and we believe this is more often an issue of pride, but we’re getting off topic.
Coming back to the previous example, if you had the option of two exact properties, and one included a w/d and the other didn’t, which would you rent, since we’ve already established that very few average renters own or keep their own?
We’ve had a solid rental market, though that hasn’t materialized in phenomenal lack of vacancy for most landlords as it’s highly centered around dense city centers. In other areas, most landlords still have to deal with several competing properties. In those situations, the property will likely have at least one or two renters simply pass for that reason alone. It’s impossible to quantify this issue as it varies according to rental rate and location, just know that the demand for your unit will be much lower, and since many landlord still step over dollars to pinch pennies when it comes to w/d, the supply of units like yours will likely be high, and we all know what that means. Lower price and longer time to find a tenant willing to accept your product.
Finally, throughout this article we have focused on the average renter which is self-explanatory for the most part. Now let’s talk about luxury homes and renters. We have found that one large exception to all that we have included so far is when dealing with larger high end homes. These renters typically pay a professional so moving this awkward appliance isn’t such an irritation, they rarely have the cash flow pinch associated with the average renter, so buying a new set is not a problem. In most cases they intend to buy soon, and they’ll have a long term place / use for their new w/d. Sometimes more importantly is that for a large home the w/d is a treasured appliance, and having the features they want is often a much larger priority over the minor savings relative to their incomes. Our advice is that the equations mentioned above start to break down as you approach $2000 a month. An exception to that is when dealing with high end luxury condos which are a favorite among well to do millennials and mobile seniors, both of whom hate to own washers & dryers, and that’s not likely to change for some time.
We would be remiss if we didn’t mention one minor drawback. While New Hanover County is the only place we operate that has this new tax that we as rental investors abhor (more on this can be found here), with the proper approach the cost is typically less than $4 per year.
As we mentioned before, if you are an investor in the average rental home, don’t step over dollars (in the form of higher rent and less vacancy) to pick up pennies. Take good care of your great tenants, that approach has a 100% return on investment (ROI)
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