18-Unit Rehab: Replace Panel Walls with Drywall or Just Paint?

Question

Hi all,

I'm wrestling with a rehab question regarding panel walls.  I'm about to purchase an 18-Unit apartment complex with full panel walls and popcorn ceiling.

What is everyone's view on panel walls? Of course it's cheaper to just paint over the panel walls and remove the popcorn ceiling (which is what I was planning to do), but now I'm wondering whether it's worth the $60,000 investment to remove all panel walls and replace with fresh drywall and fresh paint in every unit. I'm planning to keep these units long-term.

Currently each unit is 2 beds/1 bath and they rent for $600/unit.  I'm planning to raise rents to $1,045/Unit after a light rehab.

Thoughts or opinions?

Brennen Thompson · Answer

Hey dude,

We recently took down a 15-unit apartment complex with the same issues... popcorn ceilings and wood panel walls. I suggest getting rid of the popcorn without thinking twice, the stuff makes a mess and no one likes it anymore. The wood panel is a much more difficult question primarily because:

1. Ripping out the wood paneling/disposing it is costly and drywall/mudding and taping for an entire complex is going to hit your rehab budget hard

2. I don't have intimate knowledge of your market and what type of finishes you can get away with

We elected to rip out the wood paneling and install drywall only because we are doing a complete re-wire as well. That said, the comps in our area, along with the cost savings of keeping the wood paneling, justified our original plan to keep and paint the wood paneling.

My best advice - check out the comps and be honest with yourself. If you can still hit the $1,045/unit number with the wood panel, it's a no brainer to paint over it for now and possibly update each unit individually as tenants move out down the road when the comps justify it

Matt Devincenzo · Answer

You keep saying remove the paneling and replace the drywall, but may want to consider option 3. Drywall over the panelling with 1/4" drywall over top. You'll eliminate the demo cost and time, as well as some of the material cost (1/4" vs  1/2" or 5/8"). Those are somewhat negligible, but in the end will add up to still achieving the result you want at a lower total cost.

Leo R. · Answer

@Tony S. do you have any sense of the age, materials, and condition of the plumbing / wiring behind the walls? ...if the plumbing/electric are as old as the wood panels & popcorn, then it's possible they're nearing the end of their service life...

If there are plumbing / wiring issues behind the walls (or if the plumbing /wiring are just nearing the end of their service life), then does it make sense to rip out the paneling & do drywall without addressing those issues in the process?

(I've seen plenty of flips where people put up beautiful new drywall over end-of-service-life plumbing & electric--turning a $ problem into a $$$$ problem).  ...nobody wants to put up brand new walls, only to have to rip them down again in a year or two to fix plumbing/electrical problems...

So, that's a factor I'd be considering any time I'm thinking about replacing walls...

Good luck out there!

Jaron Walling · Answer

Economies of scale at it's finest. If this contractor is legit I'd replace the walls and tackle various other projects (if necessary) at this same time. Piecing projects together as tenants move out sounds great on paper but in real life it annoying and expensive. You're talking about a big bump in rent. These remodeled units need to look and feel like a $1000 rental.

Tony S. · Answer

As a courtesy update, I walked all 18 Units yesterday and decided the best course of action for long-term success will be to remove all paneling and replace with new drywall.

Thanks for everyone's input!

Scott Mac · Answer

If it were mine,

I would (probably) make the interiors up-to date modern so that it is not super obsolete looking in 10 to 15 years.

I would do them as they turn--one unit at a time--and spread the financial hit out over time (both the added turn time and the added out of pocket).

I would also check the water heaters for age (service life) too, as well as doing any electrical upgrades when the walls are open (adding additional GFCI outlets or etc...)

My rational about this is would be, can the place get market rate rent simply by painting over the paneling (which seems low end to me), and what is the close in competition offering and getting in rent?

Also what will they be offering and getting in rent in a couple of years---compared to these units--are they fixing up?

And maybe there is drywall behind the paneling.

Just my 2 cents.

Chris Szepessy · Answer

@Tony S. Have you thought about just compounding the seams of the paneling and then painting it? I did this years ago for someone and it didn’t look bad at all.

Chris Seveney · Answer

When you say $60k, are you saying you can get 18 units done for $60k to remove paneling and add drywall. If so that is DAMN cheap and I would be all over that to get it done. Also if you are raising rents by 40% in a down economy with rental rates starting to soften you will need to differentiate your product and keeping wall panels is not a differentiator. Just my 2 cents based on info we have

Peter Nikic · Answer

I'd go with painting panels. You can always replace one unit at a time if necessary or to see if it would make much of a difference.

Ricardo R. · Answer

@Tony S. That's about $3,300 per unit which is good (depending on your market) but $60,000 is still a big investment from you. You mention you'll be able to raise the rent by $445/per unit/per month so = $5,340/per unit/per year which is = $95,120/for 18 units/per year ----- That's a return (ROI) of about 58% (estimate) in the first year! with your break even right around the 7-8 month mark after rent increase.

Tony, this is assuming that 1) your rent increase numbers are correct and realistic in comparison to the comps and the local market and 2) your rehab estimate for these walls will end up being accurate. For a more conservative estimate I would go in planning for unforeseen items and would instead assume the walls cost @ $72K (20% overage) which would be @ a 32% return instead - which is still great! ----- The main factor here that you have left out however, is if the $60K in walls is directly and SOLELY responsible for the increased rent to $1,045/unit... if it is then great... if its not, which I'm guessing you are also likely going to do other repairs/upgrades to boost the rent to $1,045 in addition to this then... you would have to factor in all costs for the repairs and then carve the cost for the walls out and see if they still make sense - my guess is that the additional $445 in rent will NOT be directly linked to the walls... I'm sure it will help some, but I doubt that walls alone will increase the market rent value by $445/per unit.

This point of view is of course from purely an mathematical investment standpoint there are however other indirect factors that are hard to put on paper as well, the walls may help you rent the units faster (less vacancy = + cashflow), they may help you show the units better (better quality Tenant = less headaches, less turnover  = more cashflow), they may also add to your ongoing costs since panels do last longer whereas drywall tends to get 'holes' punched in it every now and then. Hope this helps.

18-Unit Rehab: Replace Panel Walls with Drywall or Just Paint?

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