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

Posted By Claes Bell On 01/24/2014 @ 8:30 am In MoneyDerp | 9 Comments

There’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 [3]:

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 [4] 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.

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 [5], 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 [6] 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 [7])

(Photo: Sarah Ackerman [8])


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[2] Email: mailto:?subject=http://www.bargaineering.com/articles/renovating-a-rental-bad-idea.html

[3] The Wall Street Journal: http://online.wsj.com/news/articles/SB10001424052702304757004579332792279882018?mod=WSJ_NY_LEFTThirdStories

[4] rent-controlled: http://en.wikipedia.org/wiki/Rent_control_in_the_United_States

[5] getting involved in a land war in Asia: https://www.youtube.com/watch?v=RWW6aDpUvbQ

[6] The New York Times story: http://www.nytimes.com/2014/01/19/realestate/why-renters-renovate.html

[7] Gawker: http://gawker.com/psa-dont-renovate-your-rental-apartment-1505874177?utm_campaign=socialflow_gawker_facebook&utm_source=gawker_facebook&utm_medium=socialflow

[8] Sarah Ackerman: http://www.flickr.com/photos/sackerman519/

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