Any market for luxury units?

[K Bow]

Little background, I've rehabbed and flipped a few houses, had one single fam house rented that I'm just finishing a major rehab on and will sell. Major midwestern IL city, low cost of living, real estate rates do not fluctuate much, very consistent. Nice homes average $150-200k.

Anyway, been analyzing a couple 4 unit buildings and was just discussing with an investor/rehab friend that it would be interesting to see how a luxury unit(s) would go over.

In the area I'm looking in, nicest area of the city, rents are ~$750. In my research, I've never seen a higher end unit, almost all are built/rehabbed as cheaply as possible, which just brings in another low quality renter. I could rehab and really make a nice looking unit that is much nicer than every other unit in town. Is it feasible to think I could add 50% rent value? Is this done outside of major luxury areas? i.e. manhattan, downtown Chicago, etc.

You could realistically do a fantastic remodel on a unit for less than $4k, bring in a high quality renter @ $1200+.

Just a thought, anyone else tried this out?

[Jon Holdman]

If units rent for $750 in an area, there is nothing you can do to rent a similar unit for $1200. Someone who's looking to spend $1200 will look in a different area. The market sets rents in an area, and over-rehabbing won't let you move much, if at all, above the average rents in that area.

Now, the reverse is true. If you have a dumpy unit in a nice area, you're probably going to have to price it well below other. If you fix it up to match others in the area, you can move up to match the others. And its possible that over time an entire area improves and gets higher rents. But being the one really nice unit in an area of more modest units isn't going to command a premium. It may make your unit easy and quick to rent, though.