Investing in Renovations/Updates for Higher Rent

[James Hodgson]

Hey All,

I work for an apartment remodeling company and am house hacking a duplex of my own. I am trying to better understand the numbers behind apartment remodels. What details and financials do you consider when deciding whether or not to renovate units of a complex. The complexes are original to late 80's and have lots of new builds going up all around them. 

How do you decide what to budget per unit to bring the rental value up the most? Nearly every unit gets 4-6k of new flooring. 2-5k of painting, 2k for new ss appliances, 1.5-3k to resurface or retile tub surround. After that the owner has been deciding what they want with updating light fixtures, replacing super gross toilets, dilapidated cabs/vanities, cadet heaters, replacing ivory outlets/switches/plates with white, replacing blinds, 1/4 turn valves, etc.

Project costs per unit range from $8k up to $31k (for nearly complete reno)

What would you choose to maximize value? What other numbers do you need to see to help me understand how to guide owners to value driven choices. 

current rental rates

1br 950 (Post reno - $1300)

2br 1100 (Post reno - $1500-1600 )

[Joshua Christensen]

When I remodel, I look at the area of town I'm in and the demographic of the tenant base.  

Low Income affordable housing - tend to be rougher on the units, they get a basic 1 tone paint, inexpensive flooring package, no disposal or ice maker or dishwasher - Deep Clean and Safety is my concern.  Improvement won't improve my rents and tenants will destroy in 6 months to a year. $3-5k

Working Class - I'll do a midgrade updates - 2 tone paint with neutral walls & white trim/doors, inexpensive durable flooring.  No Ice Maker - Maybe countertops, light packages, & backsplash.  Modest Improvements will move the needle for occupancy numbers $10k max

Luxury - I'll go all out and put in premium finishes.  Without the finishes, these units will maintain low occupancy and lower rents.  These properties are more about the amenities on the property.  The units need to be nice and the amenities need to be nice and functional for your demographic.  $20k max

All of this comes down to your acquisition price, your ROI on the amenities, etc. Have you run the numbers on each upgrade to see what difference it makes to the bottom line?

At a 6 CAP, $1 in NOI = $16 of value.