$3500 - $7500 Apartment Renovations???

[Brian Green]

Why do our renovation expenses seem to be so much more expensive than investors I hear on BP podcasts or at conferences, etc.?  I hear investors repeatedly quoting renovation expenses of value-add apartment renovations between $3500-$7500/unit. I have no idea how they are doing this given the fixed expenses associated with construction and materials.  Routinely investors on these platforms list  appliances, counters, flooring, and updated cabinetry(facing/painting/hardware/etc.), among other things as part of their value-add renovations. 

I began investing in small multi-family properties in need of significant renovations about 4yrs ago.  The properties are value-add investments with complete renovations to the buildings both inside and out.  My experience has been that with these properties our renovation expense has typically been $20-$25k+ per unit.  This covers stainless appliances, counters(stone or laminate pending location), refinishing hardwoods or installing new laminate floorings, paint, cabinets, light fixtures, complete bath renovations, etc. So pretty much everything is new when we are finished. 

Is this just a case of blurred definitions for value-add? Maybe our company is going way to far with renovations that aren't necessary to re-position the properties? 

Some common renovation expenses:

Entry level stainless appliances are $1600 - $2000

To repaint all surfaces of a 800 sq ft apartment is going to cost at least $1500; probably more. 

New flooring is at least $2/sq ft for product and another $3 sq ft to remove the old flooring and install. That's another $4000 per unit. (I hear numbers like $1200 for flooring thrown around by investors - what flooring is this and who is installing it for so little?)

Counters are $600-$800 for laminate or $1500 - $2500 for stone. 

This doesn't count lighting fixtures, bathrooms fixtures, window treatments, etc. And the total is already at a minimum $7000 - $7500. If the bathroom needs to be redone or kitchen cabinets need updating/replacing/etc. the cost increases exponentially. 

So my question is this. What renovations can be done within the $3500 - $7500 price points I always see quoted? Maybe our company is just buying properties in need of more renovation per unit than most investors will tackle? Someone please educate me on how on what we may be doing wrong.  Or are they just buying properties in need of much lighter renovations?  Send me your thoughts so we can improve our process and reduce our renovation expenses! 

Thank you.  

[Serge S.]

@Brian Green the $7,500 you see is an excel spreadsheet number or a lazy guesstimate from the property managers renovation super. Your numbers are about right except the biggest corner cut is flooring. An inexperienced owner will fall for the rolled laminate flooring trap. Cheap rolled laminate can be installed for as little as .50-.75/sq foot labor and materials. They use the stuff that looks like real plank/tile/wood and in the pictures it can look decent. Problem is that it is as bad as carpet and lasts 1-2 turns. First piece of furniture or appliance moved in will gash this flooring or just one water leak and its difficult to impossible to replace so it is being turned VERY frequently and the front end savings are offset over 3 years with replacements. 

Another consideration is size of a unit a 500-600 sq foot unit can probably be turned for $7500:

Appliances:$1500 - I'm getting sets in bulk under $1000 but you have to know how to do this and you need storage. Your PM won't be of much help here. PM likes to order from one of the big delivery companies HD or MD Supply at 5-20% above retail or a "deal" that they have with a company like GE. Shop around, this is one line item where you can make a big dent in the budget.

Rolled Flooring: $500 - Not recommended but being used. Most skimp on replacing baseboards but that is a must with any new flooring other than carpet.

Quartz Countertops: $1000 - 

Paint $750 - if your turning a lot of units it should cost less than $1/sq foot and doesn't include scraping popcorn ceiling. $1200 if scraping popcorn.

Cabinets $1200-1500 - Can find them for less than $1000 bulk negotiated

Light fixtures and electrical - $700

Plumbing fixtures - $900

Shower surround - $1000

And there you go $7,500 or less.  Keep in mind none of this includes the dry rot remediation, subfloor repairs, etc. You find a lot of problems in a 40 year old building once you begin. YMMV depending on region. In the Bay Area for example people are paying $2-3/foot for paint and $4-10/sq foot to lay the right flooring. The big shortcut to get to budget is using rolled laminate garbage and this is an enormous mistake because when all the units are done and repositioned for sale the next buyer will walk the units and they will look like the flooring you had in the unit before the remodel. Problem is that using laminate plank (also not a fan) or tile destroys this budget. But sounds like your thinking of doing this the right way.

Finally when a broker tells you "$3500/door" just ask that broker how many apartments he has turned. 

Here are a few pics of how my units look and I can't touch $7,500. I've been coming in at $9-11k and that has not been easy.