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Before you renovate that place you’re renting, don’t forget to pick up some Bad Idea jeans

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Renovating a rental can be hazardous to your financial healthThere’s a classic “Saturday Night Live” ad parody called “Bad Idea Jeans” where a bunch of 30-something white guys wearing stonewashed dad jeans (with a “bad idea” label, of course) stand around talking nonchalantly about a bunch of really dumb things they have planned.

One guy says he’s going to donate a kidney to a stranger; another says he’s taking in an ex-freebase addict for a couple of months so he can turn his life around.

“Hey, we’re gutting our apartment,” a young Kevin Nealon says to start the sketch off. “Ripped up the floors, pipes, wiring — having everything completely redone.”

“You’re renting, right?” asks David Spade.

“Yep.”

It’s telling that renovating a rental doesn’t look that out of place next to “I don’t know the guy, but I’ve got two kidneys and he needs one.” But it looks like some apartment dwellers are doing it anyway.

A group of artists, architects and assorted hipsters in the Red Hook section of Brooklyn are suing their landlords for raising the rents on lofts they helped spruce up in an old luggage factory. From The Wall Street Journal:

Tenants — mostly artists, designers and architects — began moving in around 2000, according to the suit. The building was still registered as a manufacturing and commercial complex, but tenants said they didn’t care because the rent was so low. The site was eventually rezoned for residential use.

Because they expected rents to remain affordable for years, tenants say they spent tens of thousands of dollars on their homes, installing showers and in at least one case an elaborate claw-foot tub, full kitchens and screen doors to let the breeze in on stuffy summer days. (Italics mine)

The tenants are now trying to get the building classified as rent-controlled to keep the rents from going up substantially, but it seems unlikely to succeed because rent control only applies to residential units constructed before 1974.

It’s hard not to feel at least a little bit sorry for the tenants. Not only are they losing all the money, reclaimed lumber, vintage heirloom fixtures and whatever else they used to make the improvements, they may also be forced to find another place to live under pressure from higher rents. And from everything I’ve heard, trying to find an affordable apartment in New York is pretty horrible.

But making major improvements with your own money to a property you don’t own is indeed a very bad idea, because … well … you don’t own it. To begin with, most landlords have specific prohibitions in their leases against doing anything more than superficial stuff without written permission. And even if you get that permission, you won’t benefit from the property’s increased value when the property is sold.

In fact, making the property more valuable actually hurts you, because, as in this case, the landlord is now free to raise the rent on your renovated apartment to reflect its new higher value, potentially pricing you out.

“Because they expected rents to remain affordable for years” is not a good reason to wager thousands of dollars, especially in Brooklyn. In fact, betting on rents to stay put anywhere, ever in the U.S. is a pretty bad bet. As you can see, since the early 1980s, rents nation-wide (the orange line) have been raising faster than the rate of inflation (the blue line). Guess what the red line is? Yep, those are rents in the New York metro area.

Renovating a rental is a bad idea because rents tend to rise.

It’s true that there are some areas where rent control can be a big help for tenants, but if you’re going to bank on rent control laws to save you from being priced out, it might be good to make sure you’re covered before you start picking out fixtures. Like getting involved in a land war in Asia, depending on the kindness or ethics of landlords probably isn’t going to end well in most cases.

The apartment-improving Manhattanites in a recent The New York Times story appear a little more financially savvy than their Brooklyn counterparts (as you’d probably expect in a borough where 17 percent of private-sector jobs are in finance).

One family featured in the article got rent concessions upfront to compensate them for the $45,000 worth of improvements they’ve made, and they got a longer-term five-year lease to keep that lower rent in place for a while, with an option to renew.

That’s closer to how commercial leases work, which is why corporations are willing to spend a fortune renovating and customizing a space in someone else’s building, and if you are going to go out on the limb of doing renovations on a rental property, probably a smarter way to go. Even if the family needed to move for some reason, in a rental market as tight as New York, they could probably sublet it fairly easily and maybe even make money on the deal.

Still, if I had that kind of money on the line, I’d get a lawyer involved to look over the lease and be sure there’s not a way the landlord could get out of it.

What do you think? Would you ever renovate a rental?

Update: Michael Marshall, attorney and principal at The Marshall Law Firm in Boston, says this issue has come up enough that there’s actually a legal term for unwanted improvements tenants make:

It’s somewhat counterintuitive, but the law recognizes a doctrine known as “ameliorative waste.” Waste generally refers to when you trash a landlords property in one way or the other, and then the landlord sues you for those damages. But in ameliorative waste, the landlord claims that you altered the property for the better, but just not to his liking or, more specifically, without his permission.

So you could say to the landlord, “Hey, I painted those walls for you!” and the landlord could argue that this is ameliorative waste because he doesn’t like the color. Not all states recognize the doctrine any more, so you need to exercise real caution when making expensive “improvements” unilaterally and without the landlord’s permission.

(h/t Gawker)

(Photo: Sarah Ackerman)

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9 Responses to “Before you renovate that place you’re renting, don’t forget to pick up some Bad Idea jeans”

  1. Dane says:

    I thought I had heard of some dirty slumlord moves, but upping rental rates on tenants who had funded their own renovations is pretty wonderful. That said, I would never renovate a rental unless it was rent controlled and I had reason to believe I’d be there for decades.

  2. CS says:

    Dane – I see what you are saying… BUT, why would anyone pay to upgrade a rental? You HAVE To know that, unless you have a contract for MANY years stable rent in place, the landlord has the right to raise the rates. Raising rates if a neighborhood is better isn’t dirty slumlord tactics at all. Landlords are in business – not charity. Businesses are in place to make money. IT can be frustrating, but it is life (as much as it can be painful).

    • Dane says:

      “the landlord has the right to raise the rates”
      Yeah, that’s why I said I wouldn’t renovate a property I was renting. You don’t get the full benefit of your investment.

      Not keeping up your property and nevertheless charging high rent is pretty much what defines a slumlord. This landlord went a step further and charged their tenants extra for improving the property. Whether they have the legal right to is beside the fact that it’s not very nice to charge someone for doing you a favor.

      You seem to dismiss any wrongdoing on the landlord’s part by saying that “it is life”, but that proves too much. Suppose that the tenants won the lawsuit to such a degree the landlord were made bankrupt. Would that then justify the other position, that the landlord was wrong to raise their rates? What if the tenants were to lose the case but then refuse to pay rent and then burn down the building when evicted? Should the landlord shrug and say, “Well, they weren’t supporting a charity, they were tenants. That’s life!”

  3. Keith says:

    CS is correct. I have a few rental properties myself and I absolutely run them as a business. Landlords have gotten a bad reputation, some deservedly so. However, my tenants love me because I treat them with respect and take care of any problems pronto. All I require is that they pay on time and treat the property like their own. I keep my rentals slightly below market rate and if I have a good tenant I usually keep rates the same or raise no more than 3% in any year.

  4. Stephen - NYC says:

    Rent control in NYC: It generally applies to units of six or greater built BEFORE 1974.
    We also have rent stabilization.
    The post-1974 issue is for buildings that received tax breaks.
    Anyway, to get a full sense of what it’s like in NYC, take a look at this Wikipedia page:
    http://en.wikipedia.org/wiki/Rent_control_in_New_York

    As to the idea of renovating something you don’t own, yeah, I agree that without any sort of long-term agreement as to what the rent will be, it is a bad, bad idea.

  5. Claes Bell says:

    Hey Stephen … I meant to write “before” … good catch!

  6. freeby50 says:

    My first impression was that the renters were idiots.

    But I think it depends on the specifics.
    I suppose it really depends on how much money the individual renters actually spent and how cheap their rent was to begin with. I mean if I had a $500 /month apartment in NYC when most rents were $1500 then I might spend a couple thousand to put in a shower.

    They don’t actually quote any tenants as saying they thought their rent wouldn’t go up. So that may be the author putting words in their mouths.

  7. BillyBob says:

    Sometimes you have to tell children:

    THAT’S. NOT. YOURS.

    Sometimes people get infected with a virulent strain of communist mindset when it comes to property ownership, and thus become like children.

    I am also a landlord and have been a good one. However, dear tenant, you are BORROWING something that’s mine. Don’t get confused about who “owns” it. If you’re unclear, that’s not a sin, but the hint is in which way the money is flowing.

  8. Wilma says:

    Never renovate a property you’re renting. That’s just silly. But I will replace a screen door that’s seen it’s better days or paint. You also need permission from your landlord to do those things.


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