Best way to renovate with tenants in place?

Question

Hey.

Looking at a 29 unit deal which is 95% ocuppied. This will be my first multi-family value-add deal if I close on it. Wanted to ask the experienced guy's here what do you usually do when purchasing a property that is mostly occupied but looking to do a value add to increase rents? I read some options about keeping one unit empty and then moving tenants there one by one while renovating their units, which doesn't sound like a bad idea, except that I can imagine it's a hassle for a tenant to move their stuff for temporary units while the other one is being renovated, but I have no experience or based knowledge here so we would be great to hear your thoughts and experiences.

My goal is to renovate the property and units within a year and exit it.

Any feedback would be appreciated.

Thanks!

Peter Nikic · Answer

The way to do this is by raising the rent. To do all 29 in one year will be tough.

Example pick 6 apartments per month to raise their rent substantially, to the point that 1/2 of them will move out. You renovated those 3, while the other 3 will be paying high rents for non-renovated apartments. You can give those tenants that stay the opportunity to move into the 3 renovated units first. Just keep doing this month after month with whatever number of turnovers/renovations you can handle per month.

Depending on how much of a renovation you're looking to do, and how long each renovation takes is the time frame you use. If you can only handle one renovation per month, then you're looking at 2 1/2 years. If you do 2-3 per month, then you'll cut your time down to 1 - 1 1/2 years (which I think is ambitious for most people).

Good luck. Is this in Miami? Let me know, I'd love to come see it after you close.

Account Closed · Answer

Reno the vacants. Non-renew as leases come to term and offer your newly remodeled.

Contractors cause headaches, renters cause headaches. It's ideal for them not to meet. Residents will assume a personal ownership of their unit and have their own opinions, schedules, cleanliness standards and ideal ease of use of the space they rent each month. Contractors are sporadic, sometimes things don't line up and now you get to explain why the 2nd bathroom they pay for will be out for 6 weeks instead of 3 days. I won't even offer my opinion on the bottom of the barrel Contractors some investors use to make the numbers work...

To keep my thoughts short, there is a lot of reasons renters rent. Not dealing with major remodels and upkeep is high on that list.

Scott Mac · Answer

Hi Guy,

You could start with the two empty units, and when they are done offer them to existing renters at market rent.

If you get takers, you have automatically emptied (and filled) two units without taking a financial hit.

Time to turn the units depends on how much renovation you will do.

Expect some mistakes and redo's along the way to add to the time.

Expect any government inspections to add to the time.

If you can keep the same team all the way through by the time they get several units under their belts they may be able to go faster--providing they can get the materials.

In my opinion, it's more intuitive to look at each unit as a separate job, vs demo all kitchens and tubs in X units as a job.

They can still come and demo several units, just for me it's seems easier to keep the Tiger by the tail this way.

If you buy all of the materials at once, you will have to guard them against theft and store them somewhere.

95 toilets going missing probably won't tank your budget, but it might tank you enthusiasm for a while.

Make sure to budget for a dumpster if you need one, and porta-potties for the workers to keep them from using the ones in the units.

Have them wrap the toilets in Saran (upon installation) to prevent use (Hopefully)--unless you don't care about this.

Just my 2 cents!

Greg Kasmer · Answer

Guy - I agree with the sentiments thus far from Peter and Jonathan. Renovation all 29 in the same year is a tall task with tenants in place. However, if you think of it as "increasing the NOI" of each of the 29 units that may be possible. As Peter indicated you can offer existing tenants an option to stay at a higher rent (i.e. If you think renovated units will get $400-$500 more, maybe you offer existing tenants to stay in non-renovated units for a $250 rent increase) and create a "win win" for you not matter their decision. In this manner, you're increasing your NOI without renovating that unit and with no capital outlay Those that choose "No" to the rent increase will leave and therefore you can renovate and command the higher rents after renovation. Of course, you'll have to figure out the appropriate rent increases for renovated and non-renovated units, but I think that may be a more feasible plan in a year timeframe and get you similar financial results you may be desiring.

Guy Idan · Answer

Thank you all for the great advice.

Peter Nikic · Answer

This along with what I said above, is probably the best method to do this. I've done this in the past with a 15 unit bldg. It took about 2 years, I renovated 14 out of 15 apartments. The one that stayed still has an un-renovated apartment with a slightly lower rent than the renovated units.

Jonathan Greene · Answer

You can't do it the way you are thinking at all. The only way to keep rotating tenants would be to cut their rent and that's a bad idea. You can't turn 29 units in a year if it's not vacant. Your wisest move is to renovate every time someone leaves or gets evicted. It won't work with your timeframe.

Best way to renovate with tenants in place?

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